|European Union Electricity Market Glossary|
Dynamic pricing refers to end-user prices that to a varying degree reflect the marginal network costs and/or generation costs of energy, which is normally purchased in the wholesale market.
Article 2(11) of the European Commission Proposal for a Directive of the European Parliament and of the Council on the internal market for electricity (recast) on common rules for the internal market in electricity (recast) of 30 November 2016 (COM(2016) 864 final 2016/0380 (COD)) defined 'dynamic electricity price contract' as 'an electricity supply contract between a supplier and a final customer that reflects the price at the spot market, including at the day ahead market at intervals at least equal to the market settlement frequency'.
'an electricity supply contract between a supplier and a final customer that reflects the price variation in the spot markets, including in the day-ahead and intraday markets, at intervals at least equal to the market settlement frequency'.
Thus, the CEER says, “the mandate for suppliers to propose dynamic price offers, according to the definition set by the Directive, do not prevent them from proposing additional spot-based offers that could better mitigate the risks through, for instance, price caps while adding a hedging cost”.
Dynamic pricing has many applications according to the granularity of consumption metering and the dynamic nature of Time-of-Use Tariff (ToU).
In this way dynamic pricing in the electricity market is inherently involved with smart metering.
Interesting possibilities are offered, for example, by smart meters with remote consumption control functionality, which are able to adapt the operation of specific home appliances, such as heat pumps, to hourly electricity prices, to shift consumption to lower-price periods.
Real-time pricing matches consumer energy prices much more closely with wholesale prices (ACER/CEER Annual Report of 22 October 2018 on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2017 (Consumer Empowerment Volume), p. 24).
There is significant variation in the penetration of dynamic pricing among household electricity consumers in Europe.
Dynamic pricing is more frequently applied in the supply of energy than in network charges.
As for gas, dynamic pricing is virtually non-existent, due to the storability of gas and, compared to electricity, the lower probability of peak prices (ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Gas Markets in 2015, Retail Market, November 2016, p. 24).
Article 11(1) of the said European Commission Proposal of November 2016 envisions the rule that every final customer in the European Union Internal Electricity Market would be entitled, on request, to a dynamic electricity price contract by his supplier.
Moreover, Article 11(2) was proposed by the European Commission as follows:
“Member States shall ensure that final customers are fully informed by the suppliers of the opportunities and risks of such dynamic electricity price contract.”
However, the Report of the European Parliament’s Committee on Industry, Research and Energy (ITRE) of 27 February 2018 on the proposal for a directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast) (COM(2016)0864 – C8-0495/2016 – 2016/0380(COD)) proposed Article 11(2) to be given the following wording:
The ITRE Committee in the aforementioned Report of 27 February 2018 also proposed the additions of paragaraphs 2a, 2b and 3a to the said Article 11 - as follows:
“2a. Every final customer shall always be required to give consent before being switched to a dynamic price contract.
2b. Member States shall aim at reducing the share of fixed components in final customers’ electricity bills.
3a. Member States shall ensure that adequate safeguards on the exposure of price changes for final customers are in place to avoid bill shocks or high levels of financial liability.”
Article 16(7) of the European Commission Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD), in turn, stipulates that where the EU Member States have implemented the deployment of smart metering systems, regulatory authorities may introduce "time differentiated network tariffs, reflecting the use of the network", in a transparent and foreseeable way for the consumer.
Furthermore, pursuant to Article 16(9)(c) of the said draft Regulation, harmonisation of time differentiated network tariffs should be a part of the recommendation provided by the European Agency for the Cooperation of Energy Regulators (ACER) to the EU Member States' national regulatory authorities regarding the progressive convergence of transmission and distribution tariff methodologies.
The policies and measures to support dynamic pricing should be described in the national climate and energy plans, the EU Member States are required to prepare under Article 3 of the Regulation of the European Parliament and of the Council on the Governance of the Energy Union.
1. CEER has not identified any price comparison tool (CT) that offers a comparison between dynamic offers and offers at a predefined price for a forthcoming period. This is because it is difficult and highly speculative to predict future prices and then compare them to fixed price contracts where the price is known beforehand. Therefore, these two different types of offers are usually presented separately in comparison tools. Nevertheless, some CTs presents various offers according to their level of risk.
2. Some CTs can use the historical consumption data of each individual consumer to refine the comparison. However, CEER has not identified any CT able to provide any valuable information to the customer on the potential savings related to their individual ability to adjust consumption.
3. Consequently, there is a significant risk that the potential benefits related to dynamic offers are not properly valued by CTs, and so information provided could mislead the consumer when making their choice.
3 March 2020
Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU, Recitals 23, 37, Article 2(15), Article 11
Report on the proposal for a directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast) (COM(2016)0864 – C8-0495/2016 – 2016/0380(COD)), European Parliament, 27 February 2018, Committee on Industry, Research and Energy
Proposal for a Directive of the European Parliament and of the Council on the internal market for electricity (recast) on common rules for the internal market in electricity (recast), 30.11.2016, COM(2016) 864 final 2016/0380 (COD), Article 11
|Last Updated on Sunday, 29 March 2020 14:03|