Electricity retailers now enjoy further increased flexibility in the wholesale electricity market as Landsvirkjun offers flexible capacity agreements. As electricity consumption in the general market (households, services, small industries, etc.) varies with the seasons and even within the day, it is vital that power purchases agreements (PPAs) offered by Landsvirkjun reflect this variable consumption.
Increased Competition on the Electricity Market
Landsvirkjun sells electricity to electricity retailers via the wholesale market. Eight electricity retailers supply electricity to the general market. Usually, the electricity retailers either generate their own electricity, or buy it from energy companies via the wholesale market, or both. Landsvirkjun‘s share of the wholesale market has decreased in recent years and is now roughly 40% of firm capacity. Meanwhile, trade in the wholesale market has increased, which is a sign of increased competition in the market.
In addition, the percentage of households that choose to switch to a new electricity retailer has increased from 0.3% in 2017 to approximately 3% in 2021, which is a pleasant development. The corresponding data in other Nordic countries is 8-20%. The number of companies in Iceland, that have switched to a new electricity retailer, has also multiplied in recent years. The increase in electricity supplier switch and lower real prices are an evident sign of increased competition in the electricity market.
Real Price Reduction on the Wholesale Market
Landsvirkjun‘s prices in the wholesale market have in recent years increased less than the consumer price index. The lowest prices from electricity retailers to consumers have also decreased in constant price levels, or by approximately 20% from 2018. Landsvirkjun‘s pricing in the wholesale market takes note of, e.g., supply and demand and water levels in reservoirs. Price changes due to underlying influencing factors are listed on Landsvirkjun‘s business web and appear more frequently than before.
Landsvirkjun‘s objective is transparent electricity pricing and active competition in the electricity market. In recent years, Landsvirkjun has met new demands in the business environment by further developing the structure of the wholesale trade. Thus, time-limits for procurement of electricity have been abolished, the digital aspect of the exchange has been strengthened, along with increased flexibility in procurement of firm capacity.
