Electricity pricing explained. Octopus energy

GreatApe

Interesting

https://octopus.energy/blog/agile-pricing-explained/

In summary it's

Wholesale price +
Transmission costs (2-7p but only applies during 4-7pm) +
Balancing costs (about 0.2p but varies) +
Distribution costs (10-15p but close to zero outside of peak) +
Capacity market (5-10p but only winter peak periods) +
Renewables obligation (2p flat fee) +
Feed in tariff (0.5p flat fee) +
CFD (varies daily but typically 3-5p) =
Retail cost + something on top to pay for the energy company to pay for its own staff it's buildings and engineers and customer support etc

So in theory the minimum price for off peak is
Wholesale + 2.7p + CFD (3-5p)

The low wholesale price days will of course be the high CFD price days. This suggests the agile tarriff is subsidised on the low price days by quite a lot and wouldn't be sustainable long term if more customers went this way

mmmmikey

An interesting post thanks. But in the real world doesn't

price = the level at which I can maximise my profits

So Octopus may be transparent about how they are setting their prices, I'd be sceptical about why they are priced like that. They are probably relying on a mulitude of assumptions about consumer behaviour, state of the competition, strategies around short and long term profits, etc.

When the big suppliers get serious about TOU tariffs it wouldn't surprise me if they are happy to make substantial losses in the short term to buy market share.

As such, I personally wouldn't read anything into this about the future of this kind of tariff - but still an article that provides an insight into some of the costs so thanks for that.

GreatApe

I found it more interesting to see the costs and charges they have to pay

Was interesting to me was the discovery that a lot of the network charges are set to be recovered from useage between the hours of 4pm to 7pm and very little to none outside of those times. That's exactly how I would design it

In theory an energy supplier could bring out a tarriff which is something like the following

High fixed cost to cover the lone and their own costs and profits. For arguments sake £10pm. Then just whatever the wholesale price is which is typically 3-5p a unit


So you would only pay 3-5p for additional electricity that's great it would allow electrification of heating at affordable prices.

The price for 4-7pm would would be wholesale plus network costs of 15-30p so you'd just not use much electricity during those hours. For heating it's fine it means you can heat your home for 21h a day using cheap low FF electricity and use cheap natural gas for 3h a day. Or just overheat your home from 3-4pm and let the higher temp ride out the off 3h a day.


I think this would be a 'game changer' in that it would allow mass electrification of heating which would allow much more offshore wind to be deployed and in theory all this would be affordable

Imagine being able to buy electricity for 3-5p
You can have even a poor performance 2.5x cop heat pump and you have heat for 1-2p a unit that's below may gas heating. If you don't want to invest in a heat pump or your demands or property isn't suitable eg you have a 2 bedroom flat. Well you can use simple dirt cheap resistance heaters instead at a still affordable 3-5p which is competitive with a gas boiler considering the lower maintenance replacement and repair of electricity heating Vs gas.