Now that studying energy bills has become a national sport, many green energy users will have noticed. Although the supplier offers “100 percent” wind power or natural power, the rates have risen sharply this year. With its high gas prices, the current energy crisis is also causing higher rates for wind turbines and solar panels. Five questions about the electricity price for electricity expert Joost Greunsven, market analysis team leader at grid operator Tennet. How is the electricity price determined? “Electricity is traded in several markets. Sometimes for delivery next year, sometimes for the next hour. One of the most important is the spot market. In that market, which accounts for 30 to 40 percent of the total power requirement, the price for the next day is determined. The electricity price is the day-ahead price. “On the one hand, producers come up with a bid on how much they want to supply at what price. The customers in turn – for example energy companies – offer what they want to consume the next day at what price. The electricity exchange collects all visible bids and matches them with each other. “Power from solar and wind is offered at the lowest price, followed by nuclear power. Coal and gas-fired power stations are the most expensive, especially at the moment. They not only have to pay high fuel prices, but also the costs for their CO 2 emissions. That order from cheap to expensive is called the merit order . “Low-cost producers are at the forefront of that merit order and then, depending on the expected demand, it is looked at how much electricity is still needed from coal and gas plants. The price level is pinned to the imaginary place where supply and demand intersect. That price applies to everyone.” Producers with the highest price are then eliminated. This means that wind farm operators are now earning a lot. “These margins are indeed larger than normal, because the high costs of gas-fired power plants are price-setting. Many people see that as surplus profit and it also feels unfair that they pay so much for ‘free’ wind power. Yet such pricing is common for all commodities. Take oil for example. In Saudi Arabia, extraction is very easy and production costs much less than in other countries. Yet – depending on quality and composition – there is one oil price. “It is also not the case that suppliers of sustainable electricity always catch the highest price. Many wind farms have contracts with larger customers who, independent of the spot market, buy the power at lower prices. And a cooperative is allowed to sell its members electricity at a low price, nobody forbids that. You don’t have to sell through the spot market.” Also read: Europe is feverishly looking for a way to fight the energy crisis. Six questions and answers If the share of sustainable electricity, now 30 percent, continues to increase, shouldn’t there be another system? “There are certainly critical voices, including from the European Commission. This will examine the current approach, called marginal pricing . You can also opt for a system where you as a consumer pay the price that your provider asks. But on the whole, fossil power is almost always needed: if wind power operators know this, they will also offer a higher price. Then you get more strategic bids, which are less based on actual costs and which lead to approximately the same price.” Will the arrival of solar and wind power have no effect on the price? “Certainly, the more sustainable electricity, the cheaper it will be. Now the gas-fired power stations are still price-setting for a large part of the day, which is gradually decreasing. You can see that if you look at the hourly price. It increases in the morning when people and companies start the day. Around ten o’clock the price starts to fall when the solar panels start producing and only towards the evening does it start to rise again on many days. That used to be really different. You can already see, especially in the summer, that electricity is generated for hours without using coal or gas. Sometimes negative prices even arise, then you get money when your electricity decreases.” In the Netherlands, the number of providers of dynamic contracts is growing, whereby the electricity price can fluctuate per hour. That is 20 percent cheaper, they say. “That could be right. This is partly because a supplier that offers electricity for a fixed price – for example for a month – includes its risks in the price. And it also pays the costs of a purchase contract with a longer term. With a dynamic contract, the rates are lower because you take on those risks yourself. Compare it to a mortgage: with a term of thirty years you pay more interest than with five years. “You can’t just say whether dynamic contracts are always cheaper. That depends on the power consumption in practice. When do you charge the car or turn on the dryer? Seven o’clock in the evening is more expensive than in the middle of the night. The timing of your power consumption ultimately determines whether you save money.” Special Energy Prices The skyrocketing energy prices are keeping many people awake . And that keeps politicians, both in the Netherlands and elsewhere, very busy. They want to prevent citizens from getting into financial trouble due to the sometimes absurdly high energy bill. Read the articles in this special: Europe dispute over question: what exactly is a price ceiling? Cost price ceiling: somewhere between 10 and 40 billion euros The risk of another round of billions of support: higher inflation How is it possible that the price of green energy also rises? Power expert Joost Greunsven explains High energy prices force companies to make difficult decisions. ‘It’s not either stopping or turning’ A version of this article also appeared in the newspaper of October 8, 2022