EU officials have set out why household electricity prices can differ widely between suppliers and contract types, citing differences in how firms buy power on wholesale markets and manage price swings.
Suppliers can purchase electricity at short notice on “spot” markets, secure it in advance through longer-term deals, or combine both approaches, the European Commission noted in a statement on Tuesday.
Short-term buying can mean bigger day-to-day price swings because wholesale prices can change through the day, influenced by factors such as weather and industrial demand, it added.
Buying longer-term can give suppliers more stable costs over months or years, which can feed through into steadier bills for customers.
The mix a supplier chooses depends in part on the types of customers it serves and its business strategy.
How suppliers try to manage sudden price jumps
Some suppliers use “hedging” — a way of reducing exposure to sudden wholesale price rises by locking in prices in advance using financial products such as futures and options — the Commission said.
It described hedging as a form of insurance against price volatility that can help suppliers avoid major losses and the risk of bankruptcy.
The Commission emphasised this protection comes at a cost, which is typically reflected in fixed-price contracts, adding that fixed-price deals are generally more expensive than dynamic contracts that pass wholesale price movements directly on to consumers.
The statement set out several contract types offered across the market, including flat-rate fixed-price contracts, “time-of-use” tariffs that charge more at peak times and less overnight or at weekends, and variable contracts that track wholesale prices more closely, often updated monthly or quarterly.
Dynamic price contracts can change frequently — for example hourly or every 15 minutes — and can be paired with smart meters that let households shift usage into cheaper “off-peak” periods.
Electricity bills typically include three main elements — the cost of the electricity consumed, network charges, and taxes and levies — according to the Commission.
It also said recent EU electricity rule changes introduced measures encouraging longer-term contracts and sufficient hedging by suppliers to improve predictability and clarity for consumers.
Using national independent comparison tools can help households find a competitive deal, with potential savings averaging over €150 per year in the EU under current market conditions.
