What does the price of electricity consist of? - 3 matters
The price of electricity consists of three almost equal components: electrical energy, electricity distribution, and electricity tax. Together with your own electricity consumption, each one of these has an impact on the amount of your electricity bill. See what these terms mean and why the price of electricity is currently rising.
1. Electric energy
Electric energy, i.e. the sale price, is determined by the electricity supplier, such as Helen. The sale price is the only part of the electricity bill that you can shop around for. The electricity sale price is impacted by, for example, the energy production costs and the prices of the Nordic power exchange.
What does the price of electric energy consist of? The sale price of electric energy consists of two parts: the consumption fee (c/kWh), which is determined according to the kilowatt-hours you have used, and the basic charge (EUR/month), which includes the electricity supplier’s fixed costs. These include, e.g. costs related to billing and sending of bills.
2. Electricity distribution
Electricity distribution is always managed by the local distribution system operator that owns the distribution network of the area. Your distribution system operator distributes electricity to your home and ensures that the electricity network is functioning at all times and under all circumstances. Helen Electricity Network Ltd is responsible for electricity distribution in Helsinki.
Distribution fees are used for maintaining, upkeeping and developing the electricity network extending to thousands of kilometres. They are also spent on investing in new electricity networks, maintaining the network customer service and metering of electricity consumption, and paying a compensation for electricity transmission at the national level. The reasonableness of distribution prices is supervised by the Energy Authority.
The electricity distribution product is determined according to the fuse size. The electricity distribution price consists of two parts: the basic charge (EUR/month) and the distribution fee (c/kWh) according to metered electricity consumption. Therefore, you can have an impact on electricity distribution costs with your own electricity usage.
3. Electricity tax
You pay electricity tax according to your electricity consumption, and your local distribution system operator invoices the electricity tax together with the distribution price. Value added tax is charged for electric energy, electricity distribution and electricity tax. Taxes account for about one-third of the entire electricity bill.
Why is the price of electricity rising?
Several factors outside the control of the electricity company have an impact on the market price of electricity. These include, e.g.:
- fuel costs,
- price of emission allowances,
- the situation of water resources,
- supply of energy,
- demand across Europe,
- global political, geopolitical and economic situation.
The market price of electricity is now exceptionally high because the war in Ukraine has increased uncertainty in the energy market. In addition, electricity procurement costs have risen due to the high market prices of raw materials and emission allowances.
Moreover, the price of electricity is pushed up especially by the dismantling of fossil energy production in Europe as a result of the COVID-19 and the increased demand for electricity when the economy picked up again. The decisions in Central Europe and especially in Germany to reduce and phase out nuclear power have also had an effect on the total electricity production volumes. Now that the demand for electricity has grown especially in industry, the challenges in production capacity will contribute to higher exchange electricity prices.
What can I do to keep my electricity bills in check?
You can keep your electricity bills in check by paying attention to small everyday choices. Here’s a few examples:
- A reduction of just one degree in the room temperature will cut heating costs by 5 per cent
- The electricity consumption of a washing machine will be halved when the washing temperature is reduced from 60 to 40 degrees
- Services that monitor energy usage, such as the Oma Helen app, help you watch your energy use, optimise your consumption according to data and that way save both money and energy.
Learn more energy-saving tips here!