To lower your bills, understand how it works
When you sign an energy supply contract, you will have two different time references, which should not be confused: the subscription date and the supply start date.
The subscription date
That’s the relevant date upon which you enter into an energy supply contract. That’s when your supplier considers the energy prices on the market to present you with a deal. It is essential in order to formulate the economic terms of your energy consumption. It’s even more important than the supplier itself.
Normally it takes from 18 months up to 1 month until the supply start date.
As an example, you can subscribe on May 12 2019 a 2-year contract that can be in force either on January 1st 2020 or June 1st 2021. In both cases the subscription date –May 12 2019- is the same, however the supply periods are different. Please note that the two supply periods will display two different prices.
Supply start date
That is when you start receiving the energy supply service you signed for on the subscription date. Generally, the supply period starts on the first day of the first month and ends on the last day of the last month.
You can subscribe to the same supply period, e.g. the calendar year 2020, on two different subscription dates, e.g. January 5 2019 and October 28 2019. Again, please note that each subscription date will display a different price.
The electron for power and the molecule for gas. In every country, this fare is mainly affected by the country’s production, its import and export capacity, its regulations as well as the global market fluctuations.
The supplier transport and deliver the raw materials from the point of purchase to the final consumers.
Beside the value added tax (VAT), applicable to all goods and services sold for national administration, there are also specific taxes for energy consumption (gas, electricity, fuel).
From one day to the next, transport fare and taxes vary little and seldom in comparison with the constantly changing commodity prices. The reasons for these fluctuations are various as:
- climatic conditions
- decarbonisation policies
- trading of CO2 emission quotas
- global economic forecasts
- uncertainty in Parliament on Brexit
- any possible disruption in gas or electricity production or transport
Markets are the reference in more and more countries to present deals to consumer customers. These are the so-called “open market” offers.
The suppliers’ profit margin
It is generally between 0.5% and 5% of the total amount of your energy bill.
Each MWh of energy consumed during the term of your contract is charged at a fixed price.
Each MWh of energy consumed during the term of your contract is charged at a price that fluctuates according to the market conditions:
- Its price increases if market prices increase
- Its price decreases if market prices fall
This is a good option if you want to avoid the risks of choosing a fixed price at a given moment, for example upon the renewal of your contract.
At the time of subscription, the value of your variable price is equal to the value of the fixed price, but unlike the latter, it will follow market fluctuations.
Variable pricing is based on indexes, which reflect the market conditions. The final price will depend on the type of index:
- A monthly index: the material price displayed in your bill will vary each month during the period of contract
- An annual index: the material price displayed in your bill will vary each year during the period of contract
The smaller the index chosen, the more the client is subject to market fluctuations.
If you choose a variable price, it is very often possible to fix the whole price or part of it during the period of contract to make the most of favourable market conditions. This is called fixing variable prices. It is a wise option to optimise your price. By using the adequate tools, this option often brings significant economic advantages.
You can fix your prices in two ways:
Over the counter
Customer and supplier agree on a fixing price. It can be requested whenever suppliers have access to trading platforms, i.e. during Stock Exchange opening hours.
Based on public prices
Prices are published when the Stock Exchange is closed. The supplier can therefore obtain its supplies later on, which implies a risk of price shifting. The supplier therefore applies an additional cost to the customer’s offer as a protection measure.
- The initial price is a mix of both price types -50% fixed price and 50% variable price
- The customer can switch from a fixed price to a variable price
- Customer can change the index of a variable price
- A quarterly or daily index can be chosen
In most cases these are useless and increase prices for customers.