Modern power prices are determined by a range of complex factors, with international wholesale energy markets playing a central role.
Wholesale energy markets vary significantly by region; for instance, in ERCOT prices in both energy and ancillary services markets can rise as high as $9,000 per MWh under tight conditions.
Deregulated markets determine your electricity rates through market prices based on supply and demand for energy, with high demand leading to rising prices while tight supplies lowering them. You can go to bestestrøm.no/dagens-strømpris/ for more information. Generation costs also play a role; coal-powered plants typically incur greater variable costs than renewable sources like wind or solar power.
In some markets, an independent system operator (ISO) coordinates generation from various power plants and establishes an hourly dispatch schedule.
They receive bids from resource owners offering to produce power for specific time slots; then use sophisticated software to sort their offers from lowest price to highest, which forms a supply stack; ultimately selecting one with the lowest variable costs to meet demand – this model of price determination is known as the merit-order model in industry parlance.
Other factors also affect prices, such as production costs for renewable energy (e.g. wind or solar power production machinery can be quite costly upfront), transmission fees associated with moving electricity across the country, and investment costs to expand capacity on existing networks, transmission and investment costs for expanding network capacity expansion, etc.
Electric utilities typically operate as monopolies in their territories and set electricity prices to cover operating and investment costs and an acceptable return. However many customers choose an alternate supplier to take advantage of retail competition – potentially helping lower their rates.
Power price in Norway
Norway stands as a global leader in renewable energy production, boasting some of Europe’s lowest electricity rates and boasting one of the highest concentrations of renewable sources in its energy system. Norway plans on remaining heavily dependent upon renewables well into the future.
Transitioning to renewables will require significant investments in new generation capacity – these decisions come with significant risks associated with future electricity price revenues. This research utilizes both global sensitivity analysis and Monte Carlo simulations to estimate the influence of various risk factors on future Norwegian power prices and market values.
Among those factors studied are demand, capacity restrictions set by politics, fuel, and carbon prices, investment costs of new generation capacity projects, production costs associated with new capacity projects as well and production cost overruns. You can click here to learn more about carbon prices.
2040 project estimates place Norway’s mean annual power price at 39 EUR/MWh; the primary factors driving this are natural gas and carbon prices. Renewable technologies vary significantly: onshore wind and solar PV have the highest market values while hydropower has one of the lowest.
Results demonstrate that in 2040, onshore wind and solar PV will have a lower levelized cost of energy (LCOE) compared to wholesale price, while hydropower’s LCOE will be higher. Furthermore, expanding renewable capacity increases their market value; hydropower capacity expansion has an effect between -0.03 EUR/MWh per GW capacity increase and a less noticeable impact on onshore wind/PV capacities.
Norway is notoriously known for having low electricity prices, leading to overconsumption. Due to the cold climate and prevalent use of electricity for home heating purposes, most households utilize electricity extensively. Investigations by consumer ombudsmen and Statistics Norway have revealed that some households pay more than necessary for power, due mostly to ignorance regarding available options or being unaware that online services allow easy comparison of prices.
Power price in Germany
The sharp increase in wholesale power prices worldwide since the coronavirus pandemic has had severe repercussions for German households. Heating costs skyrocketed, depleting budgets significantly and wiping away any savings achieved through reduced renewable surcharges or the CO2 pricing scheme for home heating and transport fuels which will become effective from 2023 onwards.
Price increases have primarily been driven by Ukraine’s civil war, which has reduced natural gas flows to Europe and raised concerns over supply security for this winter’s cold season. Prices on the EEX spot market this month reached their highest point ever seen two years prior; wholesalers demanded high prices to replenish stockpiles ahead of the cold season.
Germany’s EEG surcharge – calculated using feed-in tariff payments made to renewable power generators relative to market electricity prices – automatically rises and falls with power prices, yet many customers fail to understand its significance as an investment in supporting renewable energy. It accounts for around one-third of total electricity costs despite representing less than 25% of consumption by private consumers.
Wholesale prices have seen significant decreases over the last several years before fluctuating back up in 2018, only to drop again later that same year. Unfortunately, providers have been reluctant to pass along these reductions to consumers, prompting the consumer association Verbraucherzentrale of North Rhine-Westphalia to warn that many households could save money by regularly comparing prices and switching providers.
Private households in Germany spent approximately 9% of their average monthly income on electricity, gas, and fuels in 2016, similar to France and the Netherlands but significantly lower than Bulgarians (25%), Greeks (20%), or Hungarians (18%) who spend on these bills.
Power price in Spain
Spain has seen its electricity costs dramatically drop over the last week due to increased electricity production, leading to wholesale rates falling significantly and consumer prices remaining low throughout March according to Bloomberg models. Households may feel some relief at lower wholesale rates helping save them money on electricity costs.
Spain is one of Europe’s top producers of wind and solar energy, as well as one of its leaders in liquefied natural gas (LNG) production. As part of its commitment to decarbonization, Spain has moved away from fossil fuels in favor of renewable sources like wind and solar – especially its diverse geography has provided ideal conditions for wind and solar generation which now contribute a considerable portion of Spain’s electricity production.
Wholesale electricity prices in Spain experienced dramatic spikes during 2021 and 2022 due to Russia’s invasion of Ukraine; however, February 2019 witnessed the average wholesale electricity rate dip below 40 euros per megawatt-hour for the first time in three years – this marked its lowest price in three years!
Spain remains highly dependent on imports for energy needs, so any increase in global oil and gas prices has an immediate impact. Furthermore, Spain’s transition towards renewable energies requires considerable costs and requires significant investment.
Therefore, many Spanish families are struggling to pay the higher electricity bills. Households and businesses alike are taking measures to offset this increase, such as investing in energy-saving appliances or changing their contracted power to reflect actual consumption levels. Some are even turning towards solar panels to produce their power – both measures which will lower both energy costs and environmental impact.
The Government of Spain has taken various steps to ease the effects of rising electricity prices on consumers. These include reductions in IVA tax, Special Electricity Tax reduction, and suspension of production tax for electricity production. Furthermore, non-household electricity charges will be decreased beginning in the first half of 2023.
Power price in the U.S.
As one of the world’s premier energy producers, the U.S. enjoys lower household electricity prices than countries reliant on imports for energy needs. However, rising commodity costs have resulted in record electricity market costs.
Recent low natural gas prices may provide relief to consumers from higher electric bills; however, experts do not anticipate any immediate relief due to transmission costs and volatile fuel prices being the primary drivers.
The Public Citizen’s Energy Program notes that transmission costs and volatile fuel costs are chief among them in states that offer energy choices where rates vary among utilities within one state, often depending on whether customers rely on coal power plants, nuclear reactors, renewable energies or a combination thereof for electricity generation.