A price guarantee on a dynamic tariff is a hidden insurance premium

The same buffer, new packaging

Energy suppliers increasingly advertise dynamic tariffs with a price "ceiling". It looks like the best of both worlds: cheap intervals when the market is low, and safety when it goes wild. It is worth looking at that phrase "with a maximum price guarantee" a little more closely, though.

A fixed price is the most expensive peace of mind you can buy — and that is not a conspiracy of suppliers; it is mathematics. Anyone selling you a price known in advance has to build every market risk into it, and the more unknowns there are, the thicker the buffer.

A price cap on a dynamic tariff works in exactly the same way. The supplier takes on the risk that the exchange price breaks through the threshold — and that risk has to be priced somewhere. It is priced into the rate you pay when the market is cheap. So you are paying for the reassurance that an expensive interval will not catch you out. And in a market settled in 15-minute intervals, where the price changes dozens of times a day, there are a lot of those intervals — so that reassurance does not come cheap either.

Solving the problem from the wrong end

And here is the heart of it: a price guarantee solves the problem from the wrong end. It shields you from the price signal instead of giving you the tools to respond to it. It is a little like paying extra for a more expensive insurance policy instead of learning to drive.

Real protection against volatility does not consist of covering it with a ceiling. It consists of being able to move consumption to where it is cheap and back off when it is expensive — reading day-ahead prices, arranging the consumption profile around the cheapest intervals and controlling flexible loads (HVAC, refrigeration, real and virtual storage), including at two in the afternoon when nobody is watching the exchange.

Peace of mind is a good product — for someone with no way to respond

Suppliers read the market well: most customers, household ones especially, will not cope with the dynamics, so they are sold peace of mind. And rightly so — peace of mind is a good product for someone who has no way to respond.

A company that can actively manage its consumption profile does not have to buy one. It simply responds. And the difference between the two shows up on the invoice.