21/04/2026
What determines the price of electricity? 💡
The beautiful winter that ended not so long time ago delighted Estonians with long, lovely winter weather. However, the colder-than-usual temperatures that accompanied it “surprised” many electricity consumers with significantly higher electricity bills. Since Codeborne is actively involved in this field, helping electricity companies develop various “Smart Energy” solutions, we decided to provide an illustrative analysis of what makes up an electricity bill and how the average consumer can contribute, through their daily habits, to more efficient electricity consumption and lower electricity bills.
Although the bill varies slightly depending on whether the consumer has chosen a market-based plan or a fixed-rate plan, in this article we will examine the different line items of an electricity bill from the perspective of a market-based plan user. Additionally, we assume that the customer is solely an electricity consumer, meaning they have no capacity for generation or storage.
So what an electricity bill for a user who has chosen a market-based plan typically consists of?
🔌 Electricity consumed during the period
An electricity consumer in Estonia with an exchange package pays for electricity based on an hourly rate determined on the Nord Pool electricity exchange.
This price is influenced by:
• weather (wind, sun, cold, heat)
• current consumption levels in Estonia and neighboring countries
• availability of generation capacity (e.g., whether wind turbines and power plants are operational or if any are undergoing maintenance)
• the operation and capacity of interconnection cables
• the price of gas and CO₂ allowances
This is the most variable part of the bill. Typically, consumption levels are significantly lower at night than during peak consumption times (e.g., in the morning or at the end of the workday), and the same kWh may cost 2 cents at night and 30 cents in the evening, or the difference may be even greater.
The following items are typically listed separately on an electricity bill:
• The daily and nightly amounts of electricity consumed at the market price
• The electricity supplier’s margin or contract fee.
Note: If this is not listed separately on the bill, it is specified in a separate electricity contract.
• A monthly fee through which the electricity supplier covers the costs associated with supplying electricity to the customer and managing the contract; for example, this may include costs related to purchasing and settling exchange-traded electricity, IT costs, customer management costs, etc.
• Balancing capacity fee. This fee is intended to finance the reserves necessary for maintaining frequency and represents the cost incurred by Elering to ensure the stable operation of the grid.
🔌 Grid fee (offered, for example, by Elektrilevi, VKG Elektrivõrgud, Imatra Elekter, etc.)
The network fee is the second largest component of the bill, and the customer pays it to have electricity physically delivered to their home. The network fee is a fixed rate and is not tied to the market price.
It includes:
• maintenance of power lines and substations
• outages and repairs
• the work of network staff
• investments in grid development
The network fee depends on:
• whether you live in a densely populated area or in the countryside
• the size of the main fuse (e.g., 16A, 20A, 25A). This is usually listed on the bill as either a separate monthly or fixed fee.
• whether you have a day/night package.
🔌 State fees and taxes
These are mandatory costs required by law, which the seller simply passes on.
1. Renewable energy and security of supply fee – covers subsidies for renewable energy (wind, solar, biomass, etc.) and guarantees for security of supply. Paid per kWh consumed. The amount is not large, but it appears on every bill.
2. Electricity excise tax – a state tax per kilowatt-hour.
And, of course, VAT is added to the total amount mentioned above, which currently in Estonia is 24%.
How can consumers influence the size of their bill?
1. Time-shifting energy use – if you have a market-based plan, you can shift electricity consumption to off-peak hours
• For example: running a water heater, heat pump, or charging an electric car overnight
2. Energy efficiency
• LED lights, smart thermostats, heat retention > consumption decreases > kWh-based network fee decreases
3. Automated devices / smart grid
• Some network service providers allow you to monitor and reduce network load using smart consumer devices
Over its more than 15 years in operation, Codeborne has helped numerous energy companies develop various “Smart Energy” solutions. Among other things we have:
• built a virtual power plant for Alexela, a leading energy company in Estonia
• helped to integrate innovative energy-sharing groups into the new platform of Creos Luxembourg
