30 Dec 2020 / TechnologyTraditionally, household tariffs charge pretty much the same price no matter when electricity is used. Smart tariffs are starting to change this, however. For a start, electric cars can now be charged at a significantly lower cost in countries such as Germany.
But there's more to come. Using data from smart meters allows utilities to bill the actual cost of the electricity, known as the wholesale price, encouraging consumers to shift their consumption to times when electricity is greener and cheaper. This promotes sustainable consumption, contributes to grid stability and enables consumers to save money.
To alter consumption patterns, utilities need to provide different electricity tariffs. This blog explains how they can start, grow and evolve their business by offering spot tariffs, a key building block for utilities looking to expand their energy services portfolio.
What is a spot tariff?
The spot price is the price utilities pay when they buy electricity from the wholesale market. Spot prices change hourly in some countries such as Germany and Spain, while in others such as the United Kingdom they alter every half-hour. Prices are settled one day ahead and vary depending on supply and demand. Offering a spot tariff allows utilities to pass on the wholesale market price to end-consumers.
Until now, utilities have had to assume the risks of short-term price fluctuations for end-customers. They have had to protect themselves against this risk through a type of insurance known as hedging. The associated cost was incorporated in the price passed on to the end-customer. Spot tariffs eliminate this risk and the need for insurance, enabling utilities to offer cheaper tariffs.
There are two prerequisites for consumers to benefit from spot prices. First, they need to install a smart meter which records their actual electricity consumption at any given time. This information then needs to be matched with the wholesale price of the electricity.
Secondly, utilities require access to advanced rating and billing functionalities, such as those offered by the Lumenaza platform which allows real-time, automated processing of large and complex data sets. Billing capabilities can also include additional products, such as charges for hardware and other services.
Empowering sustainable consumption
The benefits for end-customers are clear: lower costs for electricity which is produced abundantly from green sources. Customers with a spot tariff also profit from an unprecedented level of transparency. Through apps and customer portals, they can access the electricity prices for the next day on an hourly basis, allowing them to shift and plan their consumption quickly and flexibly.
A spot tariff is especially interesting for end-customers who want to manage their consumption smartly. Those who operate a heating or cooling system, own an electric vehicle or a combination of PV and storage will want to control their electricity consumption and ensure that their car or battery is charged when prices are low. They need affordable, green tariffs and more transparency and convenience compared to traditional solutions.
Meeting evolving consumer needs
As end-consumers' relationship with electricity is changing dramatically, utilities are looking for options to diversify their offering and move away from providing a commodity-only proposition. Offering a spot tariff is one such option.
Lumenaza can help green utilities build a spot tariff. While the end-user experience is smooth and simple, the technical complexity to include, process and present this data understandably and attractively is handled by Lumenaza's powerful APIs.
Utilities can expand their spot tariff offering by providing additional services and comfort to their customers, thereby future-proofing their business models. They could add a transparent margin to the wholesale price, charge a fixed service fee or provide electricity as part of a bundle. As in the telecoms industry, spot tariffs can be offered as subscription models, where end-customers pay for a bundle of hardware and extra services. In this case, the necessary smart meter installation can be part of the monthly subscription fee.
Real benefits for end-consumers
The idea of spot tariffs is not new. For several years, energy companies have stated they would offer them to their customers. However, without critical technology such as smart meters and advanced rating and billing capabilities, end-consumers have most likely been billed average prices instead of matching their actual consumption with wholesale prices.
Real spot tariffs fulfil the promise of the energy transition that demand and supply can be flexible. Finally, end-consumers can profit from cheaper, wholesale prices while contributing to grid stability.
Spot tariffs are the natural add-on for any company offering smart energy devices - from EV manufacturers to PV suppliers and home storage providers. They allow these companies to meet their customers' increasingly individualized and varied needs, plus open up additional revenue streams.
If you're interested in learning more about how spot tariffs can fit into your portfolio, please contact us.