Electricity Pricing Offers: Cost Components
When shopping for electricity, understanding the pricing components is essential to comparing offers accurately. The price, the “offer”, is usually shown in cents per kilowatt-hour (kWh) or dollars per megawatt-hour (MWh). Knowing what’s included ensures you’re comparing similar offers across suppliers.
An electricity rate typically consists of several components: energy, capacity, ancillary services, losses, transmission, and renewable portfolio standards (RPS).
Energy
The cost of the commodity itself. The supplier calculates this as the cost to purchase the power you need on the wholesale market for your chosen term. Energy usually accounts for roughly half of your electricity price.
Capacity
Required by system operators in several markets, capacity charges help guarantee there’s enough generation to meet peak demand at all times. In markets with capacity charges, capacity is about a quarter of the price.
Ancillary services
Charges for the services that keep the grid reliable, frequency regulation, voltage support, reactive power. These typically account for less than 5% of the price.
Losses
Charges covering the electricity lost between generation and delivery, due to transmission and distribution inefficiencies. Losses also typically account for less than 5%.
Transmission
The cost of moving power from the generator to your local distribution company. Depending on your state and product, it may be billed by your supplier or your utility, and can be a significant portion of the price.
Renewable portfolio standards (RPS)
Charges tied to procuring a portion of your power from renewable sources where your state mandates it. RPS charges typically account for less than 5%.
Electricity pricing varies significantly by location and product. To compare offers accurately, review each pricing offer carefully and ask the supplier to clarify any components you don’t understand, or work with a third-party energy partner who can navigate the complexity and make sure you’re getting the best possible price.
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