CES Spotlight Blog
For the right clients, Real-Time and Day-Ahead pricing products provide low cost power
The vast majority of end-users who participate in the competitive electricity marketplace buy fixed-price fixed-term contracts. And for good reason. The fixed-price fixed-term contract structure offers budget certainty and provides insurance against price spikes over the term of the contract. Certain end users, however, are willing to forego budget certainty in exchange for a lower average price over time. For these folks, buying their electricity in either the real-time or day-ahead market may make sense.
Every day CES sends an email to our clients who purchase electricity in the real-time or day-ahead markets. The email goes out each night just before 5pm and contains hourly prices for the day-ahead market on the following day. This allows manufacturing facilities the opportunity to shift production away from high priced hours to lower priced hours. Over the past few weeks these emails have provided very good news in the form of astonishingly low electricity prices. On most days over the past few weeks electricity prices have struggled to get over 3 cents per kWh. On a few days they have struggled to get over 2 cents per kWh. A recent example from March 24th is included.
These rock bottom prices are reflective of the abnormally warm winter temperatures, the very low price of natural gas, and the still tepid economic recovery.
To be sure, these are wholesale electricity prices and are not indicative of the all-in retail price that end users must pay. In addition to the wholesale electricity price there are many ancillary services, administrative fees, and regulatory items that must be added to the wholesale electricity price. The most significant of these charges is the Forward Capacity Market charge which can vary dramatically from client to client. And, of course, there are the non-bypassable local distribution company charges.
As we head into summer, electricity prices can spike on hot humid days and these weeks of very low prices will certainly be at least partially offset by some very high priced days. Real-time and day-ahead clients must also weigh current low spot market prices against the chance to lock in budget certainty with current fixed-price fixed-term contracts in the mid to high 4 cent per kwh range (excluding Forward Capacity Market Charges) all the way out through 2015. Today, however, everyone on a day-ahead and real-time contract is enjoying the rewards of taking more risk. For the right clients - who can withstand the significant daily and sometimes hourly fluctuations in price - buying spot power has been a very attractive alternative over the past several months.