Wholesale or spot prices fluctuate as conditions in the electricity system change from hour to hour and season to season.
These conditions include what type of fuel is being used for generation (for instance, coal and gas are more expensive than wind and solar) and whether all generation and transmission assets are operating as expected. For example, a fault in the national grid can create a short-term shortage of electricity in certain areas that could create a temporary price increase in those areas.
The level of demand is also very important in determining the wholesale electricity price. Demand rises and falls through the day and across the year, especially during cold winter mornings and evenings, and over parts of summer when many businesses are operating at less than their normal capacity.
Most customers don’t see this volatility, because most electricity companies smooth these costs and offer customer fixed term contracts. More than 99 percent of homes and businesses are on fixed-price electricity contracts where the prices only change at certain intervals – usually, this is once a year when lines companies change their prices.
What Meridian is doing
Meridian is working to build as much new renewable generation as we can to improve the balance of supply over demand, which will bring prices down. We’re supporting demand flexibility (in other words, providing incentives for customers to use less when supply is tight and more at other times) so the entire system can cope better. We’re also supporting industrial customers who want to make the switch from thermal fuels, like diesel or coal, to electricity.