As all the risks in a full supply contract are on the supplier’s side, he aims at setting the prices of the full supply contract accordingly. Therefore full supply contracts are generally quite expensive.
Principles of a full supply contract
The energy supply company has the duty to designate the exact amount of energy to be delivered and the exact time of the delivery ahead of the actual delivery to the grid operator. This is necessary for the grid operator to balance the grid and to keep the voltage level.
The forecast for the demand ahead of each delivery, so the load profile forecast for each of the single customers is a complex and elaborate process. The energy supply company has to compensate any deviation between its forecast and the real load profile to the responsible grid operator who using balancing power to keep the grid stable.
The inaccuracy of forecasts is a risk which the supplier has to bear alone. On the other hand, the world market prices for primary energy carriers such as coal or oil are another risk factor as they influence the cost of power generation considerably. If a supplier is forced to pay higher prices for the primary energy carriers needed, the profit margins for selling power might go into the negative range. This implies that the supplier incurs losses when selling power to his customer.
How can energy supplier and consumers connect in a full supply market?
Consumers can compare and chose appropriate full supply contracts via tendering procedures. A municipal utility is a consumer with a very high energy demand and could try to conclude a fixed-price contract for the next three years. Generally, the higher the demand, the more useful is a tendering procedure in order to reach more suppliers.
Surplus or shortage of supply is always excluded in the contract. When the demand fluctuations are however very large, capacity components can be integrated into the contract. Full supply contracts are designed for a prolonged period of time, up to several years, where the supplier has to bear risks, while the consumer (buyer) has certainty about the price.
