Anya Kussé
As a leading player in the energy market, we unburden companies in their energy policy and develop future-proof energy strategies. Our team of experts negotiates, manages and optimizes our customers' energy contracts in a continuous and transparent manner. Supported by AI-driven software, we provide insight into the current and future cost of each MWh. We integrate sustainability into our overall approach and work pragmatically and solution-oriented to support you in the energy transition. Together, we create the most ideal energy landscape for your business.
In recent days, the media has been talking about it: dynamic energy contracts could greatly benefit consumers financially. But does this also apply to businesses? In this article, we further explain how dynamic contracts work and the potential for business owners.
What are dynamic energy contracts?
A dynamic tariff follows market prices directly. The price you pay changes every hour for electricity, or daily for natural gas. These energy prices are announced each day for the following day. So you know one day in advance what the "cheap" or "expensive" hours will be. At the end of the month, the supplier will bill your actual consumption at the corresponding hourly or daily prices.
What is the difference with variable energy contracts?
Both dynamic and variable energy contracts use the same (variable) price exchanges to determine the basis of the energy cost. Whereas dynamic contracts look at the smallest price unit (per hour for electricity and per day for natural gas), variable energy contracts work with averages on a daily or, say, monthly basis. At the end of the month, the supplier will calculate the average and charge all consumption at that price.
In the graph below, we illustrate this with an example using the 08:00 and 14:00 consumption hours. At both hours, 8 MWh will be consumed. At 8am, however, the total cost will be much higher (8 MWh x €127 = €1,016) than the same consumption at 2pm (8 MWh x €55 = €440).
If we were to calculate the total dynamic cost for this day, this company would pay €8,658.97, as opposed to €8,867.66 with an average price (2.41% more).
So is a dynamic energy contract always more advantageous?
Those who can maximally shift their consumption toward the hours with the lowest prices will benefit the most. The reverse is also true: if your company does use a lot of electricity during hours of high general electricity demand, such as morning and evening peaks, there is a risk that the total cost will be more expensive than with a fixed or variable energy price contract.
Key points of interest:
⚡As an individual you can easily decide to put your washing machine on an hour later, but for most businesses it is very difficult to shift their consumption. Businesses depend on certain opening hours or have to consider production schedules and work schedules, for example.
⚡On the other hand, if you have a fleet of electric vehicles, for example, a dynamic energy contract allows you to commit to charging when power prices are cheaper. Such a flexible strategy ensures a higher return on your charging stations.
⚡When your company has (a lot of) surplus power from solar panels, negative power prices weigh much harder in an energy contract with hourly billing. In this case, it may be appropriate to opt for an injection contract that does not have hourly billing.
Read more about the impact of negative power pricesin🖱️deze blog on our website.
⚡More and more suppliers are passing on their imbalance costs. These costs occur when the demand or supply of electricity deviates from forecasts and are passed on to the end customer. Thus, the more people start changing their offtake "last minute" to respond to hourly prices, the larger the imbalance will become, and thus the higher the imbalance costs. We can ask ourselves whether the win by betting on the cheap hours will then still outweigh the higher imbalance costs.
⚡For many companies, not being able to estimate future costs is pernicious. A dynamic energy contract offers no way to fix (parts of) the volume in price. Because this budgetary uncertainty is often unacceptable, companies are often pushed toward "block clicks," although in practice these often entail even more risk.
Read all about the differences between profile and block clicks in 🖱️ this blog on our website.
Summary.
Dynamic energy contracts follow the hourly or daily prices of the market, where companies that can shift their energy consumption to the cheapest hours can gain financial advantage. Unlike variable contracts, which work with average prices, dynamic contracts settle actual prices by the hour or day.
This can be advantageous if a company is flexible with energy use, but risky if it consumes a lot during peak hours. Companies with solar panels may feel negative power prices more strongly in dynamic contracts. On the other hand, uncertainty about the future budget is not attractive to many companies. Imbalance costs, caused by deviations in energy forecasts, can also reduce the potential benefits of dynamic contracts
Conclusion.
Whether a dynamic energy contract can benefit your business depends largely on your energy situation and consumption profile. An expert such as Odot can help you identify these and choose the right type of energy contracts.