26.11.2021

Pricing in the energy sector. Knowledge worth millions.

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Adam Wlizło

Member of the Board

One of the most important analyzes in assessing the company's condition is pricing power (the ability to achieve satisfactory price levels). If you can raise your prices and not lose customers to the competition, you have great business. If you have to go and pray before every one-tenth of a cent increase, you have a terrible business ...

If we were to assess the condition of the Polish energy sector based on the thesis @Warren Buffett cited above, one would have the impression that the national champions are doing great. And it probably is so, since the market shares of the main (state-owned) sellers have changed slightly over the years, regardless of the pricing strategies implemented. The experience of the last 15 years in electricity trading allows us to conclude that most sellers use the practice of average (let's say - market) prices, but there are also those whose pricing policy always assumes selling at high prices. The latter can admit that the strategy of high prices (despite selling the same electricity with service quality not different from competitors) is a bull's-eye, since numerous price increases did not contribute to the decline in sales.

From the customer's perspective, things are completely different. It was, is and will be expensive. It is quite a popular statement of entrepreneurs, but also of most of us, "household members". "Sellers take advantage of their quasi-monopoly position and dictate conditions that cannot be opposed." Well, you can, at least in part. Let's try to look for cheaper alternatives to purchase energy on the market (this also applies to gas). There is always a chance to find a cheaper (and more importantly - reliable) seller.

Knowing how low the real rate of customer losses and gains is, energy companies now have the power to dictate price conditions freely. They also do not have a strong enough incentive to improve their cost-effectiveness and make the offer more attractive. The @URE data show that the number of customers from G tariff groups (~ households) who changed their supplier from 2007 to September 2021 was only 713,000. (in Poland we have about 15.4 million of them, which means that only about 5 out of 100 Poles wanted to take advantage of the benefits of the liberalized energy market). At the same time, the number of entrepreneurs (customers from A, B and C tariff groups) who changed their supplier in the same period is 222,000. out of 2.4 million (approx. 9%).

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