The price of electricity – why does it change, and how is it calculated?

Electricity price development – why does the price of electricity fluctuate, and who decides on the price?

The price of electricity is not decided on at random. The price is affected by many factors, including the cost of generating it and the Nord Pool prices on the Nordic power exchange.

Generation costs and market prices depend on various other factors as well, such as the weather. In the Nordic countries, much of the electricity used is generated by hydropower, and when there is a year with little rain the water reserves run out. In this case, it may be necessary to rely on more expensive imported electricity, which raises the price on the stock exchange. This also eventually shows up on your electricity bill.

The market price of electricity is the sum of many factors, and is constantly changing in response to these. For this reason, the prices of electricity contracts are always “alive”, as they follow the changes in the market price of electricity. Since there are many variables involved, it is very difficult to predict when electricity will be available at the lowest price.

There is no need to worry about the price of electricity constantly rising and falling. Most electricity customers appreciate a stable price of electricity that fluctuates very little, which is why we at Vaasan Sähkö aim to keep prices as stable as possible.

You can also choose an electricity contract where the energy price of electricity is always the same.

Did you know you can lock in the price of electricity (cents per kWh) by choosing a fixed-term electricity contract? The price of electricity will remain the same throughout the contract period, despite changes in the market price of electricity. This makes it easier to predict the size of the electricity bill. The total amount of the invoice therefore varies only according to your own electricity consumption.

An alternative contract type is an electricity contract that remains in force until further notice. Vaasan Sähkö’s electricity contract is of this kind, and the prices steadily follow the market price of electricity. Our pricing is transparent, and we want to earn your trust in how we operate. We always announce price increases in good time, no later than one month before the increase.

Read more: Electricity consumption at your home – what does it consist of

Electricity price: electricity bills consist of three elements

The total amount shown on the electricity bill can sometimes be confusing. You may be wondering why the bill is so big, what you are actually paying for, and what is the share of the electricity price in the bill.

Many people think of an electricity bill as covering the actual electricity consumption of the home – such as using the sauna, cooking and watching TV. In reality, however, the energy charge alone accounts for only about a third of the bill.

The electricity bill also includes the electricity transmission fee and taxes. These account for roughly two-thirds of the total amount of the bill.

If you order electricity from your local transmission company, you will only receive one electricity bill. You will be charged for the energy you use, and the bill will also contain the online service fee and taxes. All these will be in the same bill.

If your electricity seller and transmission company are not the same, however, you will pay for the electricity and electricity transmission and the related taxes on two separate bills. Whether you pay for electricity with one or two bills does not affect the amount to be paid.

The share of energy in the electricity bill – you can reduce your bill by tendering out for electricity

You pay an energy charge to your electricity seller. This is the price of the electricity used. The cost of this is determined in the electricity contract you have made with the electricity seller.

The energy charge consists of the following:

• Basic fee: a fixed monthly fee with which the electricity seller covers their fixed costs, such as staff salaries.
• Energy charge: the price of the electricity consumed.
• VAT: added to the sum of the basic charge and the energy charge.

If you want to reduce your electricity bill, you can either reduce your electricity consumption or tender out your electricity contract to find a cheaper offer. This is an easy and free way to reduce your electricity bill.

The geographical location of the electricity company does not affect the price of electricity, so you can order electricity from the company of your choice from anywhere in Finland.

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The network service fee is paid to the electricity grid company

In order for the lights to come on and your oven to heat up, for example, the electricity must also be transmitted to your home. In other words, it is not enough to just buy the electricity – you need to pay for the transmission as well.

There are electricity grids for the transmission of electricity that are owned by regional electricity network companies. In the Vaasa area, for example, Vaasan Sähköverkko is responsible for transmission.

Grid companies take care of the development and maintenance of the electricity network, for example by carrying out repairs after storm damage so that the electricity supply to homes can be maintained and the other energy needs of society can also be met without any problems. Electricity transmission cannot be tendered out. The transmission service is always purchased from the local electricity grid company.

The transfer fee consists of the following:

• Basic fee: a fixed fee that is based on the type of subscription.
• Electricity transmission fee: based on the amount of energy used. The electricity tax is added to the transmission fee.
• Electricity tax: added to the transmission fee.
• VAT: the current rate of value-added tax is added to the basic fee, the electricity transmission fee and the electricity taxes.