Can you really buy wholesale energy prices?

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The price we pay for energy is something most households just accept and go along with, but what if there was a way to buy electricity at a cheaper rate? It may seem like a pipedream, but buying wholesale energy prices is a very real proposition, so long as you know where to look. As you’re about to see, there are various costs knitted into your power bills, which is why some Aussies prefer to chase wholesale rates in search of better savings. Keep reading to find out if buying wholesale energy rates lives up to the hype – and what’s the catch?

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What are wholesale energy rates?

Wholesale energy rates are the prices retailers pay for electricity to supply their customers with. An energy provider will buy power – known as wholesale market costs – from the National Electricity Market (NEM) and then on-sell the wholesale rates to customers at a marked up price. This is to cover the cost of generating and transporting power to households via poles and wires, as well as factoring in any government schemes and residual expenses from the retailer. And of course, that retailer wants to make a profit!

Before we dive in a little further, it’s important to note that electricity purchased at a wholesale rate is called a spot market, meaning prices are traded regularly between power generators and retailers. Spot prices are updated every 30 minutes and fluctuate in value depending on the time of day.

Here is an example from the Australian Energy Market Commission (AEMC) of how much wholesale electricity prices can vary during peak demand periods (i.e. when we all get home and turn on the air con).

Wholesale energy prices graph
The graph above highlights a spike in electricity demand from around 4pm to 7pm on a weekday, a three-hour period when the grid is usually at its peak capacity. As electricity demand increases and decreases throughout the day, so do spot prices.

How do wholesale energy plans work – and what’s the catch?

While a handful of retailers claim to give customers access to wholesale energy prices, there are generally other costs attached, like membership fees. This means that although wholesale rates are technically on offer, consumers will still be paying more for the spot price as listed by the Australian Energy Market Operator (AEMO). In reality, customers are given ‘access’ to wholesale energy rates at the expense of a membership fee. Think of it as like a Costco membership – you get to buy cheap goods, provided you’re a member!

So, instead of paying marked up energy rates, bill-payers will instead pay a membership fee, either via ongoing instalments or a lumped annual sum. This is where reading between the lines becomes so important. Although wholesale energy rates are up for grabs, it’ll normally always come at a cost somewhere else.

This doesn’t necessarily mean the whole thing is a con, but it does mean it’s not quite as simple as only paying wholesale energy prices. You could still end up getting a good deal overall. In fact, some of the companies with these pricing models claim to have fairly ingenious ways to help consumers pocket wholesale prices when they’re at their cheapest. This includes alerts through smartphone apps which display live rates and pricing forecasts.

Energy retailers are a business, at the end of the day, and rely on customers to purchase electricity through them. Aside from power retailers themselves, only large-scale industrial businesses can buy wholesale energy prices directly from generators as their demand for electricity is much higher than residential or small business customers.

Keep in mind that, if you’re going to benefit from wholesale rates when they’re cheap, you could also be hit with higher prices when the wholesale cost goes up.

Who sells wholesale electricity rates?

There are more than 35 residential energy retailers in Australia, but only a handful have business models based around wholesale prices – they are Energy Locals, Powerclub and Amber Electric.

Energy Locals

Energy Locals is a small electricity retailer taking on the competition in New South Wales, Victoria, South East Queensland, South Australia and the ACT. It currently has two plans – Online Saver and Local Saver – both of which provide wholesale prices for electricity usage. Monthly membership fees apply. Energy Locals promises ‘no price gouging’ when rates change, as well as access to an online portal that shows half hour electricity usage.

Here are the Energy Locals plans on our database for NSW. These are products from a referral partner†. These costs are based on the Ausgrid network in Sydney but prices may vary depending on your circumstances. This comparison assumes general energy usage of 3900kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Here are the Energy Locals plans on our database for Victoria. These are products from a referral partner†. These costs are based on the Citipower network in Melbourne but prices may vary depending on your circumstances. This comparison assumes general energy usage of 4000kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Here are the Energy Locals plans on our database for SE QLD. These are products from a referral partner†. These costs are based on the Energex network in Brisbane but prices may vary depending on your circumstances. This comparison assumes general energy usage of 4600kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Here are the Energy Locals plans on our database for South Australia. These are products from a referral partner†. These costs are based on the SA Power network in Adelaide but prices may vary depending on your circumstances. This comparison assumes general energy usage of 4000kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Powerclub

One of the newest entrants to the retail market is Powerclub, following a similar approach to pricing as Energy Locals. It offers wholesale electricity prices, but as you guessed it, they are only available if you pay a membership fee, but this time yearly instead of monthly. Powerclub states it has an app called ‘Powerwatch’, which is designed to alert customers when wholesale prices are high. The app also advises ways to reduce energy usage during price hikes.

Here are the Powerclub plans on our database for NSW. These costs are based on the Ausgrid network in Sydney but prices may vary depending on your circumstances. This comparison assumes general energy usage of 3900kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Here are the Powerclub plans on our database for Victoria. These costs are based on the Citipower network in Melbourne but prices may vary depending on your circumstances. This comparison assumes general energy usage of 4000kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Here are the Powerclub plans on our database for SE QLD. These costs are based on the Energex energy network in Brisbane but prices may vary depending on your circumstances. This comparison assumes general energy usage of 4600kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Here are the Powerclub plans on our database for South Australia. These costs are based on the SA Power network in Adelaide but prices may vary depending on your circumstances. This comparison assumes general energy usage of 4000kWh/year for a residential customer on a single rate tariff. Please use our comparison tool for a specific comparison in your area. Our database may not cover all deals in your area. As always, check all details of any plan directly with the retailer before making a purchase decision.

Amber Electric

Another provider in its infancy is Amber Electric, promising customers a more ‘honest’ way of buying power. In exchange for providing wholesale energy prices, this provider charges a small monthly fee. At the time of publication, Amber Electric is only available in South Australia and to Sydneysiders on the Ausgrid network. Much like Powerclub, Amber Electric also has an app which is claimed to give consumers live prices and 12-hour forecasts. They also guarantee customers will never pay more than the Government’s Default Market Offer over a 12-month period.

Word of caution about wholesale energy price estimates

The nature of buying wholesale energy rates means accurately predicting annual power costs is very tricky business. However, energy regulations mean that retailers and comparison websites (including Canstar Blue and various government sites) must give consumers a price estimate and reflect how this cost compares to the market. This is why estimated costs for wholesale energy plans should be treated with some caution.

In the case of Amber Electric, it takes a cautious approach in only guaranteeing customers an annual cost equal to the Reference Price, when in reality households could stand to save much more in the right circumstances. It all comes down to how well you engage in the process – and of course, what wholesale prices do.

Are wholesale energy prices cheaper?

Electricity bill with light bulb in frontYes, wholesale electricity prices are technically the cheapest in market, but that doesn’t mean these rates remain the cheapest when sold to customers. As mentioned earlier, buying wholesale doesn’t necessarily mean the lowest price because energy companies usually attach other fees to cover the cost of giving customers access to wholesale prices.

Also keep in mind that – given the fluctuating nature of the wholesale energy market – those cheap rates can suddenly skyrocket at a moment’s notice should power supply struggle to meet demand in the market. The retailers that sell wholesale energy prices claim to have measures in place to try to mitigate the risk of high spot prices being passed onto customers, but it’s worth keeping in mind the volatile nature of the system.

For a wholesale energy plan to work well in the customer’s favour, you’ll need to make sure you monitor prices closely and follow your retailer’s guidance on when power is affordable and when you should cut back because of high spot prices. Given your retailer will be making money from your membership fees rather than through your usage (as with most normal power plans), it has nothing to gain from seeing you slugged higher usage rates.

How much does 1kWh cost?

The price charged for electricity per kilowatt hour (kWh) will depend on the state, as well as the electricity distributor which is responsible for delivering energy to homes and businesses via the national grid. Unlike distributors, a retailer is in charge of setting the kWh price that customers pay for electricity, with the average usage rate per kWh typically costing between 20c and 40c.

Usage and supply charges of energy plans can be found by using our free comparison tool. Simply type in your postcode, select a plan of interest and click on the ‘more details’ button to the right of page.

Are wholesale energy prices worth it?

Signing up to an energy retailer offering wholesale prices is certainly not a gimmick, with lower rates often paving the way to cheaper power bills. Just be sure not to expect to pay the same wholesale electricity rates as retailers get, given you’ll likely be stung with additional costs elsewhere. If you can justify membership fees in exchange for wholesale energy prices, then these plans could prove to be a serious money saver – just make sure you know what you’re getting into.

It seems reasonable to suggest that wholesale energy plans are only really suitable for consumers who will – and want – to closely monitor their energy usage in search of cheaper rates. Going with one of these plans certainly means your energy costs are less predictable, but taking the risk could pay off.

Image credits: Andrey_Popov/Shutterstock.com, Australian Energy Market Commission (AEMC), tommaso79/Shutterstock.com

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