Norway has achieved commendable success in terms of ensuring a reliable power supply for its residents. The fact that only a very tiny fraction of its generated power comes from fossil fuel is praiseworthy. This is despite Norway’s well-known status as one of the largest oil producers in Europe and even the world at large. It shows how committed the country is to a greener planet.
It is also pretty much self-sufficient in supplying electricity to its residents. The country even exports power to neighboring countries, thanks to the multinational exchange program. You can click here for more information about Norway’s self-sufficient capabilities in this regard.
There are flexible electricity pricing systems in place for consumers. For the most part, they can choose to be billed on a spot price or hourly spot price basis. More on the implications of being charged with both options will be discussed here in this article.
What Is Spot Price?
This pricing system is determined through a bidding or auction process. Various participants in the power sector are involved in the bidding or auction to come up with a price for power consumption. Usually, the price for a day is agreed to the previous day.
This is why it is also known as the day-ahead spot price. The spot price option is volatile because of the possibility of swift changes in the cost of generating and even supplying power. However, it is nowhere as volatile as the hourly spot option discussed below. This explains why most people in Norway opt for it.
What Is the Hourly Spot Price?
This is a price determination based on the cost of power supply at any given hour. For instance, the cost of power supply at night can be a lot less than the cost in the afternoon. It works majorly with demand and supply rules.
Consumers get lower prices during those periods when electricity demand is not high. On the other hand, the cost is high when the demand is high. Those that opt for this pricing system need to understand how volatile it is. This can be to their advantage as well as their disadvantage, as will be discussed subsequently.
Some people would like to think that this pricing system is more expensive than the option discussed above. However, determining which option is cheaper is not as straightforward as that. People who prudently manage electricity usage with the hourly spot price may discover that it is cheaper.
Advantages of Hourly Spot Price
Using hourly spot pricing comes with several advantages. Some of them include the following:
Transparent Pricing
Some of the market participants in the power sector try to pull a fast one on consumers. Market traders in this sector are high on the list of such participants. However, the very transparent nature of this pricing system makes it very hard to extort consumers.
This is because they can see the cost of power supply per hourly interval. The activities of regulatory bodies also add to its transparency.
Flexibility for Consumers
It allows consumers to have more control over what they pay as electricity costs. This is because they can adjust their use of electricity to times when demand is not high. As a result, they would end up paying less for every kilowatt per hour that they use. This equally contributes to efficient electricity usage, which is very important.
Positive Effect on Power Grid
Norway has achieved commendable success in terms of power generation and supply to its residents. Proper management of its grid is one of the reasons for this.
However, it does not hurt to put measures in place to balance the power distribution from the grid. Fortunately, this pricing system contributes to efficient power distribution from the grid. The reason is that it reduces consumption during peak hours as consumers try to save costs.
Helps Other Power Generators Make Informed Decisions
It is not only helpful for consumers who need greater control and monitoring of consumed power. It is also helpful for other generators of power in the country and beyond.
Much of the electricity used in Norway comes from hydropower. This is understandable, considering how blessed the nation is with water resources. However, there are other players in the power-generating industry. Many of them use other renewable energy forms.
These power generators need to be mindful of when and how much is generated for use. It is easier to do this with this pricing system. The reason is that they have a better idea of electricity consumption per hourly intervals.
Disadvantages of Hourly Spot Price
This pricing system is not without its downsides. Some of its possible drawbacks include the following:
Price Volatility
There can be very swift and massive changes in the price of electricity between hourly intervals. So, consumers can be caught off guard if they do not keep track of the current market price for hourly intervals.
Consumers Need to Be Up-to-Date
Consumers can end up paying very high rates. This can happen when they consume so much electricity during peak hours.
Sometimes, it is simply because these consumers fail to keep track of changes in the rate of electricity per hourly interval. In other words, consumers need to be up-to-date with these things to make the most of this pricing system.
Advantages of Spot Price
Using this pricing system comes with several advantages, and it explains why this strøm timespot (electricity pricing system) is mostly used in Norway. Some of its advantages include the following:
Allows for a Competitive Marketplace
Competition in the sector is in the best interest of consumers. This is because market participants such as suppliers, traders, and even generators will try to outplay each other.
This means offering fairer deals to consumers in most cases. The general participation of all players in determining electricity prices for every day ensures price efficiency.
It Is More Defined
Consumers are not forced to keep track of their timely power consumption like it is with the hourly spot pricing system. It is not a fixed pricing system, but it is more defined than the hourly spot pricing system.
Disadvantages of Spot Price
Spot pricing is not without its downsides. Some of its possible drawbacks include the following:
Price Volatility
Swift and massive changes in the cost of electricity can be experienced as well. However, its price volatility is not as much as with the other flexible pricing system.
Limited Flexibility
It is easier to control and monitor power consumption with the other option. There is very little that can be done to control the electricity charges with this pricing system.
Possibility of Extortion
Various players in the power sector can easily extort consumers with this pricing system. It is not as transparent as the other flexible pricing option.
Conclusion
Regardless of the chosen flexible pricing system, certain factors influence the cost of electricity in general. These factors include the balance of demand and supply, fuel prices, weather conditions, interconnection capacity, regulatory influences, and the amount of generated power at any given time.
The activities of the various participants in the power market also impact electricity costs. You should choose the right strøm timespot (electricity pricing system) by considering the details shared here.
