Wholesale Pricing Stress Test
Ready to take on Wholesale Pricing?
Switching to wholesale/ spot pricing allows you to access the cheapest electricity prices on offer. Although there are many benefits to spot pricing, there are reasonable risks to consider, and it’s important you have a fair idea of what these could be.
High spot prices can happen.
Spot prices fluctuate every 30 minutes, and at times, they can reach all-time highs. Wholesale pricing resembles the electricity market, which subsequently can be reflected in your power bill.
Monitoring Spot pricing is key!
The best way to avoid high prices is to monitor your consumption as much as possible. This way, when prices are high, you can adjust your consumption accordingly and avoid using power to reduce costs.
No Price is Guaranteed.
Accessing wholesale prices means you’re exposed to a price risk level as conditions and pricing fluctuate every 30 minutes. Therefore, although we can predict and expect prices to be within a particular range, that’s not always the case. Several variables impact wholesale pricing, and many things can change.
As your electricity retailer, it’s our job to pass on any relevant information about wholesale pricing and any particular risks. The EA has given stress test information for large consumers of electricity, which will impact commercial customers more than residential customers. EA has yet to provide any calculations for residential pricing.
Everything you need to know about the Stress Test
Well, the EA stress tests calculate the worst-case scenario prices you might be paying if we were to face challenging market conditions.
Test 1’s scenario is for sustained high prices of $400/MWh (or 40 c/kWh) for 3 months due to a shortage of generation (for example, during a drought). Test 2’s scenario is for high prices of $10,000/MWh (or 1,000 c/kWh, or $10/kWh) for a short, 8-hour period due to an unexpected generation shortage during a peak time. this information will help to work out what you might pay in either of these scenarios – and whether you could afford to pay that increase if those situations occurred.
And how do you work that out?
Here are simplified versions of the two stress tests set by the EA.
Using your power bills from the last 3 months and work out your average kWh use (a) over that time (for example, add each month’s usage together and then divide by 3).
Then to work out your Base Case (BC) total, or what you might ‘normally’ pay for the power under usual conditions so that you can compare that with the Stress Case (SC1 or SC2) totals to see the increase in costs.
To work out your Base Case (BC) total, multiply your average kWh usage (a) by 0.10.
E.g. a x 0.10 = BC
Then follow the steps below to work out your cost increases under each Stress Test scenario.
Stress Test 1
Multiply your average kWh usage (a) by 0.40 to work out your Stress Case 1 total (SC1), or what you might pay in Stress Test 1’s extreme conditions.
E.g: a x 0.40 = SC1
Then deduct the Base Case total (BC) from the Stress Case 1 total (SC1) to get an idea of the increase in costs (IC1) under Stress Test 1.
E.g. SC1 – BC = IC1
Stress Test 2
Multiply your average kWh usage (a) by 0.1363 to work out your Stress Case 2 total (SC2), or what you might pay in Stress Test 2’s extreme conditions.
E.g: a x 0.1363 = SC2
Then deduct the Base Case total (BC) from the Stress Case 2 total (SC2) to get an idea of the increase in costs (IC2) under Stress Test 2.
E.g. SC2 – BC = IC2
All going well, you should now have an increase in cost total for both of the stress tests.
from here, this should give a reasonable gauge whether you’d be able to manage to pay your bills through an extreme pricing event.
If at any stage you feel the risk is no longer worth taking, please contact our commercial sales manager, who can place your account to fixed rates.
