What is a spot price, and how is the electricity price set?

The spot price is the price of electricity hour by hour, set on the Nordic power exchange Nord Pool. Every afternoon, the sellers of electricity and the buyers of it submit their bids for the next day, and from those bids a price is settled for each of the next day's 24 hours. Supply and demand decide it: plenty of cheap power makes the price low, a shortage makes it high.

If you have a variable electricity contract, it's the spot price your bill follows, plus a markup to your electricity supplier. So the price can look completely different from hour to hour and day to day. Below we cover what the spot price is, how it's set on the exchange, why Sweden is split into electricity areas, why the price swings, what a variable price means for you, and why no one can say where it lands tomorrow.

The market price of electricity for a single hour. The electricity sold across the Nordics is traded on one shared power exchange, Nord Pool, where a price is set per hour from how much electricity is offered and how much is demanded. The same hour has the same spot price for everyone in the same electricity area, no matter who you buy your electricity from.

So your supplier doesn't invent the price. The supplier buys the electricity on the exchange at the spot price and adds its markup. The electricity itself costs the same for all of them. That's why two variable contracts differ most in the markup, not in the price of the electricity.

Through an auction the day before. Around midday each day, the power producers submit how much they can deliver and at what price, hour by hour for the next day. The bids are lined up from cheapest to most expensive, and demand is filled from the cheap end until the hour's need is covered.

What matters is the last bid needed. The most expensive plant that has to be started for the electricity to be enough sets the price for the whole hour, for everyone. When it's windy and the reservoirs are full, the cheap electricity goes a long way and the price stays low. When more expensive power has to be pulled in, the price climbs, even for the electricity that was produced cheaply.

Sweden is divided into four electricity areas, from SE1 in the far north to SE4 in the far south. Most of the cheap electricity is produced in the north, while much of the consumption sits in the south. The lines in between have a limit on how much they can move southward.

When the transmission isn't enough, the price can differ sharply between north and south in the same hour. The south then has to pull in more expensive electricity from closer by, while the north can have plenty of cheap. So which area you live in affects your spot price, without you doing anything other than living where you live.

Because supply and demand change all the time, and mostly with the weather. When it's windy, wind power makes masses of cheap electricity and the price falls. When the wind drops on a cold evening while everyone heats their homes at once, both demand and price rise. The level in the reservoirs, the sun, the temperature and the time of day all pull their own way.

Sweden is also connected to its neighbours. Electricity is imported when it's cheaper somewhere else and exported when it's more expensive there. That evens things out, but it also means a power plant going down in Germany or a cable that's out of service can show up on your price here. The sum is a price that can be low at midday and high just in time for the evening, the same day.

With a variable electricity contract, you pay the spot price for the hours you use electricity, plus your supplier's markup and the taxes and fees that always come on top. If you use the most when the price happens to be high, the bill is higher, even if you drew the same number of kilowatt-hours as a cheap month. So what you pay is decided not only by how much electricity you use, but by when.

A fixed electricity contract does the opposite. You lock a price per kilowatt-hour for a period, avoid the swings, but pay for the safety and miss the really cheap hours. Variable or fixed is at heart about who should carry the risk for what the price does, you or the supplier.

Not really. You can guess roughly a few days ahead from the weather forecast, but everything that sets the price changes all the time: the wind, the cold, the reservoir levels, what the neighbouring countries do. Neither your supplier nor any app can say where the price lands next winter. Anyone who claims to know is selling a guess.

That's exactly what a fixed price removes. An energy subscription from Elvy gives you a monthly cost that stays fixed, adjusted once a year by the consumer price index and never by the spot price. The system still shifts your electricity use toward the cheap hours in the background, but it's no longer your homework to watch. What the spot price gets up to tonight, you never need to know.