14th September 2020
Wholesale energy price watch
Nick Speechley, Green Energy Procurement Expert
At Octopus, we create smart energy tariffs like AgileOctopus with pricing that varies throughout the day based on the current wholesale market price of energy,(i.e., what WE pay for it). But it’s much more than a cheap tariff: it’s an experiment, a key part of our mission to drive the transition to a 100% renewable energy system.
AgileOctopus prices are calculated automatically around 4pm each day, based on the next day’s wholesale price forecast. The formula they’re calculated on doesn’t change (if you’re interested, read our Agile pricing formula here), but tonnes of different factors from the weather, to politics, to huge global crises like Coronavirus, can affect the wholesale price of energy.
Where most conventional energy tariffs are hedged months in advance so customers only feel the effects of really long-term wholesale changes, Agile’s dynamic pricing means short-term market changes can make a big difference.
In this blog, our energy procurement team will give the scoop on the market conditions that have led to particular changes in our Agile tariff’s rates.
But first, a quick note on why we create products like AgileOctopus.
While it’s amazing to be able to pass cheap prices on to customers, that’s not why we’ve created our smart tariffs. Agile is an experiment designed to transform the way our society uses energy – and a key part of that involves price ‘peaks’ as well as plunges.
Our plan with a tariff like Agile is to make using energy cheaper when it’s greener, and more expensive when it’s dirty, in the hopes of helping people change their energy use accordingly – reducing the need for fossil fuels, and making the most of renewable energy at times when the wind is blowing and the sun is shining.
That means AgileOctopus has both super low (sometimes negative) price periods when energy is very green, AND on the flip side, also some pretty pricey peak periods (capped at 35p/ kWh) when the system is under lots of pressure and so more carbon intensive.
When prices are higher, AgileOctopus isn’t broken - it's working exactly as it should. Much like when the train station gates shut during rush hour, Agile’s higher price periods signal to customers when they should avoid using power then as much as possible to save cash and carbon, and avoid straining the grid.
As a customer on this innovative tariff, you have to take the ‘highs’ with the ‘lows’. We saw incredible, sustained low prices throughout the UK lockdown, when super sunny and windy days combined with unprecedented low energy demand to lead to a ‘perfect storm’ for power prices. On several occasions, Agile customers were paid to use energy.
More recently, we’ve seen some higher priced days as wind generation has dropped, the price of gas has risen, and ‘heatwave’ temperatures have seen demand for energy – and therefore, wholesale energy prices – creeping up a bit around the world. The most important thing to remember is that the conditions driving higher prices are a part of the same wholesale dynamics that affect all energy costs – they just show up very directly in Agile. In the long run – all energy tariffs reflect energy cost increases otherwise companies would go bust.
Will I save money on AgileOctopus?
AgileOctopus has, to use Greg’s favourite expression, bonkers cheap. Even in recent months when the prices go ‘high’, the average daily price on agile octopus is usually significantly cheaper than a standard tariff.
In the long run, whether you save will largely depend a lot on how much you change your energy use.
If you use energy exactly as normal, you’ll likely end up paying around the same as standard tariff fixed tariffs, because the expensive prices during the daily 4-7pm peaks are balanced out by 21 hours of cheaper ‘off-peak’ energy every day. If you shift your usage out of the peak times, you could stand to save money.
So, what’s going on with wholesale prices?
15th September 2020
Low wind, low nuclear and higher demand see wholesale prices increasing a bit, plus, some context on Agile's 'expensive' days...
For the past two days, we’ve seen slightly higher prices on AgileOctopus, sparking a bit of chat between customers.
Low wind generation on the grid, paired with lower than usual levels of nuclear, and higher demand this week as we all try to cool ourselves down through Summer’s final days, have seen wholesale prices going up a little.
The graph below shows the UK's national demand (or DANF – the top black line) compared to renewable generation. You can see wind generation, both on and offshore have dropped far below normal levels.
We wanted to put these “high prices” in context.
The best way to save money on AgileOctopus is to shift your consumption out of expensive peaks.
Today, we saw the 4-7pm peak reach our 35 p/ kWh capped price. That's because demand is really high, renewable generation is super low, and fossil fuels are being burnt to pick up the slack. These deliberate price incentives and deterrents are there to help you change your energy use habits to line up with times when renewable generation is high, and out of times when the grid is strained, and more reliant on dirty fossil fuels.
Agile is designed to encourage you to move you consumption out of the peak to save money, so the best way to make the most out of Agile is by shifting your consumption. Yes, the peak prices on AgileOctopus are high – but prices are well below market rates for the other 18 hours of the day.
The cheapest four hours of tomorrow's pricing sit at 8.3p/ kWh. (That's nearly half what most people pay every day on a standard energy tariff.)
Some of our customers said it best:
I've managed to save anywhere from 6% to 42% in the last 7 days even with these higher prices. As @JibbleBobble says if you are not planning your usage to avoiding the peak then Agile is probably not for you.— Anthony Breach (@anthonybreach) September 13, 2020
Even if you don't shift your usage, Agile is no more expensive than an average tariff – in fact, it's generally still cheaper.
According to AgileOctopus legend Mick www.energy-stats.uk, who uses our open API to publish daily Agile pricing reports, the daily average Agile price for Tuesday 15th September is 15.8p / kWh. Our current standard flexible tariff is going for 14.8p / kWh. So, an AgileOctopus customer’s 'most expensive day' is only a tiny amount more than a regular day on our standard tariff.
It gets better – get a quote for a Big 6 standard variable tariff and you’ll find they’re mostly hovering around the 17p / kWh mark (some a little lower, others even higher). So, again, the rare ‘expensive’ day on Agile is still quite a bit cheaper than any day on a Big 6 standard tariff.
So, to recap – if you use Agile as it was designed, and shift your consumption out of the expensive daily peak, you can save tons of money (and save carbon while you're doing it!)
And, even if you do nothing at all to change your consumption, Agile's most "expensive" day is within a penny of a standard tariff with Octopus (and more than 7% less than the average Big 6 SVT).
Thanks so much to our customers for coming along with us on this crucial experiment for the future of energy, shifting your consumption and changing age-old habits in the fight for the planet. It's amazing to see that so far, this experiment is really working.
Its definitely shifted our usage pattern - I never even knew the dishwasher had a timer till we switched to Agile.— simon chetwynd (@chetwynd_simon) September 14, 2020
Solar + battery storage means we never draw anything at peak times.
It's obviously disappointing when the price is higher overall but it's what we signed up for, like any variable tariff. We've already adjusted our habits in our house and shift and reduce usage when we can. Information is power and choice is control.— Mark Ford (@fordsville) September 13, 2020
And if you do find that AgileOctopus doesn't suit your household, we totally understand. We have zero exit fees, so you can switch to another of our tariffs, or to a different supplier, any time.
24th August 2020
Agile prices were bit higher than usual between 4-7pm demand peak due to low wind power generation.
The fairly hefty ‘peak’ price for a few half-hour slots today was down to a few factors.
- As the wind isn’t blowing, we’re low on wind power. The old-fashioned ‘look out the window’ trick proves correct here: wind generation is just pretty low, which means the grid has to rely more on other (pricier, often dirtier) sources of energy.
- Slightly higher wholesale is typical of this time of year. Right about now, generators are often prepping and carrying out maintenance in the run-up to winter which means it’s pretty common to have lower-than-usual availability. When energy is more ‘scarce’ than usual, prices are higher.
19th August 2020
Why were energy prices higher in a heatwave?
During an incredible heatwave, some Agile customers were expecting to see even lower prices than usual – surely when temperatures are up, solar panels are working overtime!? Nope. Wholesale prices were higher than some expected. Why?
- There wasn’t much wind power being generated. In the UK, we have a total wind capacity of over 22GW. On Wednesday, wind output was expected to drop below 3GW, (and down to 1.5GW at peak times) and remain low for the rest of the week.
- The heatwave drove energy demand up, here in the UK and around the world. Hot days always lead to an increased demand for air-con and other emergency cool-down methods. The UK doesn’t have the same air conditioning load as other parts of the world, but what the UK does have will be working overtime to prevent people from melting. The other thing worth noting is that we are connected to Europe via interconnectors. When it's hot in Europe, their demand increases (where air conditioning is far more common) and the prices in that market increases. Traders in the UK will take advantage of the higher prices in Europe and nominate power to be exported further, increasing UK power demand.
- A BONUS ONE: Many people understandably think that hotter days could lead to more solar power. Not so. Solar panels actually lose 10-25% of their efficiency at temperatures above 25 degrees, and are more impacted by factors like cloud cover.
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