Recent months have shown that electricity prices can be significantly affected not only by weather conditions or local electricity production, but also by geopolitical events. Therefore, it is increasingly important for businesses not to try to predict the market, but to assess the risk that delaying a decision can cost.
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“Business clients often postpone decisions hoping to get a more favorable price. However, it is influenced by many different factors, so waiting, especially during this period of uncertainty, can have the opposite effect – if the price rises, the company not only does not save, but pays significantly more for the same amount of electricity,” says Mantas Masalskis, Head of Business Solutions at “Elektrum Lietuva”.
Waiting can cost hundreds of thousands of euros
“Elektrum Lietuva” calculations show that even a price change of a few euros per megawatt-hour can mean much higher annual costs for companies consuming large amounts of electricity.
For example, a company that consumes 22 GWh of electricity per year could have fixed a price of just over 80 Eur/MWh with green energy for the next two and a half years in spring. In summer, the price of a similar offer already exceeded 90 Eur/MWh. A difference of more than 8 Eur/MWh would mean about 177 thousand euros in higher annual costs for such a company.
Waiting can have an even greater impact on companies consuming more electricity. For example, for a business consuming 53 GWh per year, if the price increased from approximately 100 to almost 109 Eur/MWh, additional annual costs would amount to about 453 thousand euros.
“The higher the electricity consumption, the more expensive delays can be. For example, for a company consuming 20 GWh per year, every 1 Eur/MWh price change means about 20 thousand euros in additional annual costs. Therefore, the decision on price fixing should be evaluated based on specific calculations,” notes M.Masalskis.
Fixed Price – A Risk Management Tool
According to M.Masalskis, fixing the electricity price is not an attempt to guess the lowest market price. It primarily allows for more accurate cost planning, budgeting, and assessment of the potential impact of market fluctuations.
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“Waiting is not a bad decision in itself if the company consciously takes on market risk and has assessed the possible consequences. The problem arises when a decision is simply postponed without evaluating how much even a small change in electricity price can cost,” he says.
According to the expert, there is no single solution suitable for all companies – some prefer fixed, others exchange, and still others mixed pricing. The most important thing is that the choice is made after evaluating the company’s electricity consumption schedule, financial plan, risk tolerance, and ability to adapt to market fluctuations. If stability, clear cost, and the ability to plan cash flows more accurately are important to the company, a fixed price can become a way to reduce uncertainty.
What to expect in the coming months?
According to M.Masalskis, in the first half of this year, wholesale electricity prices in Lithuania were higher than in the same period last year, so the assumption remains that the average for the entire year may also be higher.
“Although in spring we saw average monthly prices lower than 60 Eur/MWh, it would be difficult to expect such levels in the coming months, unless extremely favorable conditions coincide – high renewable energy production, lower consumption, and smooth cross-border electricity flows,” says M.Masalskis.
According to him, in the second half of the year, especially as the heating season approaches, price fluctuations may remain significant.
“On the one hand, with the rapidly increasing number of solar power plants, we increasingly see low or even negative prices during the day; on the other hand, during evening hours, when solar generation decreases and consumption is high, prices can significantly jump upwards. Therefore, the average electricity price in the second half of this year will mostly depend on weather conditions, wind generation, the availability of regional transmission connections, and, of course, the geopolitical background,” predicts M.Masalskis.
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