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Home NewsAnalysisEventsWHAT WILL BE THE OFFERS IN THE RETAIL MARKET?

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WHAT WILL BE THE OFFERS IN THE RETAIL MARKET?

WHAT WILL BE THE OFFERS IN THE RETAIL MARKET?

It is a common retailer practice to prepare and propose integrated offers for electricity, which incoporate all elements of the electricity bill, namely: именно:

  • Energy
  • Network costs
  • Add-ons (Obligation to Society price)
  • Taxes

The last three elements do not depend on the retailer. They are regulated and the retailer acts in the role of an intermediary who settles payments between the customer and the respective counterparts but does not influence element prices.

What terms and prices does the energy trader offer?

Customer attention should be focused on the first element, namely, what terms and prices does the energy trader offer?

Traders in well-developed wholesale and retail markets have options to offer a diverse price list. This allows their customers to choose the optimal solution for them, depending on customers’ flexibility and risk-taking willingness potential.

Here are some broadly used price schemes, arranged by the following two criteria: from static low-risk to dynamic and high-risk.

Static pricing

Flat (statictariff: a fixed unit price per kWh for a certain period of time, regardless of market price alterations.

This type of pricing is suitable for consumers with a constant load (i.e. their consumption does not allow its management) and unwilling to subject their business to price fluctuations. In this case the supplier bears the entire risk of market uncertainty. Flat tariff may include the capacity component (BGN/kWh) applied to a capacity negotiated between both parties.

Tariffs according to the time of consumption (static): the price per kWh depends on the time of consumption. This type of pricing is well known in Bulgaria – daily, night, peak tariff, measured by way of the massively represented electrometers with two and three scales. Tariffs may also be season-, working- or non-working day-determined, etc. What is important here is that this type of tariffs do not change dynamically/hourly depending on the electricity exchange prices, but are statically defined for the respective timespans. Here as well, the wholesale trader is exposed to the risk of market fluctuations.

Dynamic pricing

Achieving a increasingly higher efficiency of wholesale electricity markets and the availability of smart metering devices ensure favourable conditions for developing dynamic pricing. In essence, dynamic pricing allows for the fluctuations in electricity prices in the wholesale market to pass through the supplier and be born in full or in part by the end-user. Customers need to assess the level of risk associated with price volatility when they choose strongly dynamic prices.

There are various approaches to dynamic pricing, for instance:

Real-time pricing, when actual consumption per a given hour is invoiced under the respective hourly exchange price;

Critical peak pricing: the retailer may invoice electricity consumed by the customer at prices higher than the negotiated ones for a limited hourly-interval within 24-hours, when there is an actual generation/supply shortage in the electricity system. This approach emits economic signals for a drop in consumption within the periods of shortage, thus supporting supply reliability.

Dynamic short-term pricing: it is applicable to certain time intervals and upon occurrence of predefined fluctuations in exchanges prices.

It is impossible to describe the entire range of dynamic pricing approaches. And, it is hardly necessary for the time being – dynamic pricing requires investments in sophisticated (smart) measuring devices that are not massively present currently at low-voltage non-household consumers.

Article 2 and Article 11 of the revised Electricity Directive (2019/944) include the main definitions and responsibilities, related to the entitlement to a dynamic electricity price contract. Such a contract is defined as an electricity supply contract between a supplier and a final customer that reflects the price variation in the spot markets, including in the day-ahead and intraday markets, at intervals at least equal to the market settlement frequency. Final customers who have a smart measuring device installed can request to conclude a dynamic electricity price contract with at least one supplier and with every supplier that has more than 200 000 final customers.

What are the price-offers in the retail markets of European states?

A well-functioning market is characterized by innovations and a set of products and services offered to customers. As a whole, the ability of retailers to offer a substantial number of commercial options, coupled with customers’ ability to compare offers and make informed decisions, is a sign of a healthy operating competitive market and presence of innovations.

CEER Monitoring Report on Retail Market published at the end of 2019 provides information about the type of offers existing as a practice in various European states.

 

OFFER TYPEDESCRIPTION
Variable (21 EU states)the price paid per unit of electricity used can be changed at any time.
Fixed (26 EU states)guarantees that the price paid per unit of electricity used will not change for a given period of time
Mix (16 EU states) 

based on both fixed and variable components

Variable spot based (15 EU states)i.e. variable price based on the wholesale market spot price
Variable wholesale price based (15 EU states)i.e. settled against monthly/weekly average wholesale price
Capped (11 EU states)guarantees that the price paid per kWh for electricity will not rise beyond a set level for a given period of time, but may go down – usually for this certainty customers pay a small premium
Indexed variable (7 EU states)similar to spot-based which is linked to wholesale, but linked for example to standard incumbent offer with guaranteed discount of x% or to RPI
Green (20 EU states)offers based on renewable generation resources like hydro, solar, wind, biomass etc.
Social (9 EU states)offers for vulnerable consumers
Online (22 EU states)with savings/discount for managing accounts online, online billing
Guaranteeing the origin of energy (15 EU states)any energy source other than green or country
With monetary gains (21 EU states)discounts, supermarket vouchers, etc.
With additional services (18 EU states)energy efficiency services, boiler maintenance, etc.
Bundled products (17 държави в ЕС)i.e. in combination with telecommunication services

 

As regards the availability of various offers among Member States, there is growing trend towards online electricity offers.  Compared to the previous year, customers in six more Member States have taken advantage of the online offers for electricity supply in 2018.

Other products, for instance different pricing options and guarantees for the origin of energy also are on the rise. The upward trend of online deals or offers guaranteeing the origin of energy is an indication of a growing demand, which in turn points towards a better economic and environmental awareness among electricity consumer. It also manifests European traders’ adaptability to technological developments, which enable them to cut costs, for instances, for invoicing.

In the recent years consumers purchase more and more of the so-called ‘bundled products’. These are marketing packages that include combined products and services in one or more sectors, for example, packages for a broadband connection (the Internet, land lines, TV, mobile telephony, etc.) or products grouped in many sectors (e.g. energy and household insurance, banking and travel insurance, or other combinations).

How many price-offer types are accessible to consumers in the various Member States, including Bulgaria?

According to CEER, regardless of the regulatory framework in the electricity markets analysed, there is a positive trend observed with regards to the increasing number of offers in Europe: consumers in 22 out of the 27 Member States receive more than five offer options, which is a significant rise compared to the previous year. In the other states, markets are not fully liberalised, as yet. That is to say, that there is a link between the regulatory framework and the diversity of offers accessible to consumers. Positive is the development in many countries of Eastern and Southern Europe, such as Romania, Latvia, Greece, the Czech Republic and Croatia, where electricity consumers have access to at least three more offers compared to 2017.

 

CEER statistics shows that in 2018 Bulgarian retail electricity market presented 3 types of offers.

How many and what type of offers will be put forward in view of the transition of low-voltage non-household consumers to the free market, will become apparent after EWRC sets up a platform to compare offers for electricity supply, as stipulated in the latest amendments of the Energy Law, dated 26 June 2020.

As we have already written, the platform will be a single, central, public, web-based information system, which grants access to up-to-date information about electricity supply offers.

Final customers with an expected annual consumption below 100 000 kWh will have free-of-charge access to this platform for information on offers, including dynamic electricity price offers. In turn, electricity traders will have the obligation to provide EWRC with monthly updates on offers regarding this segment of final customers, while also informing consumers about the platform in the issued invoices and attachments thereto.

In line with the newly-adopted provisions, EWRC has to develop and put into operation this platform, and to draw up and adopt the rules on platform functioning by the end of this year.

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