Cheap can be expensive, like energy

The energy market is currently one of the most dynamic. Since its liberalisation in 1997, with the first Aznar’s term in office, it has become a business for many companies that have decided to invest in energy trading, reaching a considerable turnover, taking into account the business life-cycle of the sector since then.

Today there are more than 420 trading companies located throughout the Spanish territory, whose scope varies depending on their size. Only 80 of them operate nationwide. Good judgement when choosing between this wide range is essential, even if hiring energy is a commodity and has a high cost the price is not everything.

When we talk about buying and selling energy we refer to its commercialisation. A final consumer does not buy and does certainly not sell. In colloquial term, he hires energy with one or another company. Hiring a fixed price implies generally to guarantee a price for a year. We often receive annual discounts on fixed prices, but to think that a discount on a fixed price necessarily means a lowering of our current costs in the same proportion as implying the discount itself is a mistake: on the one hand, the discount only applies on the unregulated part, the part set by the commercialisation company represents approximately between 25 and 30 percent of the bill; on the other hand, to determine the actual extent of the discount, the rate on which it will be applied should be at most the same rate we have now hired, otherwise, we could be incurring extra costs.

We have also heard about hiring indexed prices, which implies buying the energy matching the market price adding a sales fee charged by the distributor. In this case, we will not have a fixed price during one year, but our price will vary according to market fluctuations. There’s a lot to talk about this and many ways to compare, but no guarantee to have a specific price since we subject it to daily market fluctuations. So for now, if you decide to hire the indexed price we recommend to order a comparison with past prices and simulated bills, ie, asking the vendor or distributor that simulates us our recent bill with prices he would have said applied during the period we choose to compare.

Notwithstanding the above, it is important to note that, as in all sectors, not all existing deals are equally reliable. Biggest traders provide continuity, but not necessarily a low price. However, we can not choose a small one only for bid price, because the business of buying and selling is complex and any problems arising from poor management by who we hired the energy with can bring us indirect problems. It is therefore better to look for a combination of reliability and price, asking for referrals, finding out the history of the company and finding out if in the recent past has incurred problems. CNMC and BOE pages are sources of useful information.

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