How does rising energy prices increase sellers’ profit?



Arkadiusz Somnicki

Member of the Board

"Since we raise prices twice, let's throw in a few more PLN from each other. Companies will pay anyway "- these are the words we will hear from many a price strategist employed by energy sellers.

The words then translate into actions - increases in price lists and all kinds of offers submitted to companies for 2022 and subsequent years, disproportionate to the real market situation.

The stable price market is - you could say - boring. Prices either do not change at all or possible fluctuations do not exceed 2-3%. Profits from the sale of energy are shrinking, unit margins are falling. The competition is strong, new sellers are appearing on the market, offering lower and lower rates resulting from well-chosen purchasing strategies or better cost-effectiveness than incumbent corporations.

The situation is completely different in a growing market.

And it is growing rapidly. The year 2021 is the best example of this - the prices of energy and property rights - the main "components" of energy prices soared within a few months, reaching almost double y / y growth. Entrepreneurs who traditionally purchase energy in the last months of the year will soon see the rates of 510-550 PLN/MWh on their invoices - i.e. about 200 PLN/MWh higher than this year's rates.

Such large price increases give sellers a chance to rebound from low margins achieved on energy sales (when the market was "reasonably" stable). They take advantage of the market panic and increase their margins on sales - they assume that for clients (entrepreneurs) a price increase by PLN 200 or PLN 210 does not make a big difference. Such activities are of course supported by a quasi-monopolistic market model (for years the market shares of state champions have been relatively constant and dominant in relation to smaller players looking for happiness on the market).

When talking to entrepreneurs, we always encourage them to collect offers from at least a few sellers - both large state-owned corporations but also those with a smaller market share in Poland (but significant on European markets). Such a simple action will allow us to obtain a lower price in relation to the seller with whom we are associated "since forever" (often even by 5-30%).

We encourage larger entrepreneurs to negotiate at a "higher" level, which involves the analysis and negotiation of individual price components (energy itself, but also property rights, balancing, risks embedded in the price and - of course - the seller's margin). By supporting companies in such activities, we know how much room to negotiate prices is, as long as you have the appropriate knowledge.

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