Utilities in the European Union may have to offer more flexible prices from 2020 to encourage consumers to use more electricity when supplies are abundant and cheap, according to proposed new rules, a top EU official said.
Most European utilities sell at fixed prices, regardless of price swings on wholesale markets, which makes sense when most power comes from coal and nuclear plants that are always on.
But the surge in intermittent renewable energy, like solar and wind generation, has led to intraday price swings that demand a flexible approach to encourage usage on sunny and windy days when power is plentiful, the European Commission says.
The challenge will be to encourage utilities to adopt a more flexible price structure and to expand the rollout of smart meters in Europe. These meters could be linked up to mobile phone apps or other displays to show power price changes through the day and indicate when using appliances would cost less.
“We want to give consumers incentives to consume more when energy is cheap, therefore member states will have to introduce dynamic pricing besides other billing systems so that consumers have a choice,” Klaus-Dieter Borchardt, director Internal Energy Market at the European Commission, told Reuters.
A package of power market reforms drawn up by the Commission late last year includes a provision for all EU states to ensure their utilities offer so-called “dynamic pricing” to reflect changes in supply.
Borchardt said the legislation outlined by the Commission was likely to be approved by the European Parliament this year or next, and would then come into force on Jan. 1, 2020.
Variable pricing could cut power bills for an EU household by up to 400 euros a year, Borchardt said, as consumers turn on appliances on sunny or windy days or when offices and factories are shut at weekends.
Flexible pricing contracts are already offered in Spain and Nordic states, such as Finland, Sweden, Norway and Estonia, said Commission official Anna Colucci. “We would like to offer it to all consumers in Europe,” she said.
In Estonia, almost 70 percent of suppliers offered a flexible price contract and 20-25 percent of consumers used them, she said. Estonian supplier Eesti Energia allows clients to link contracts to wholesale prices and track hourly prices.
In Norway, about 90 percent of customers of Hafslund, the main supplier in Oslo, buy power at spot-indexed prices, a company spokesman said. Government statistics show spot price-contracts tended to offer cheaper prices in the past decade.
A vital step toward introducing dynamic power pricing will be installing smart meters in households. By 2020, about 17 EU states will be rolling out smart meter programs, Colucci said.
Some utilities may prove reluctant to offer a pricing model that gives customers more flexibility but means companies face less predictable earnings.
But Borchardt said they would have to adapt. “They can’t stop it. There is no real opposition in parliament and in member states” to introducing such a system, he said.
Industrial clients have long benefited from more variable power pricing deals, encouraging them to time their usage.
Jean-Marc Ollagnier, group chief executive of Accenture Resources, said utilities had to offer significant price variations to encourage households to change their habits.
He said some household usage remained inflexible, such as in the evening when lights come on and meals are cooked, but said the rise of intermittent renewable power still strengthened the business case for offering more flexible pricing formulas.