English | Українська
E
Download abstract

Commercial offer for electricity supply and its components. How to choose a supplier

Module 6Lection 5

Andriy Sementsiv

Andriy Sementsiv

Expert in strategic development and partnership of LLC "PRET Service Energozmin", Head of the Development Department of LLC "Prykarpatenergotrade"

A specialist with over 15 years of experience in the energy sector, specializing in the supply and sale of electricity. Has successful experience in managing divisions, developing and implementing effective business solutions, as well as close interaction with key clients. Has a comprehensive understanding of the functioning of the electricity market and practical skills in organizing energy sales processes.

Master of Electrical Engineering, graduate of the Ivano-Frankivsk National Technical University of Oil and Gas with a degree in “electrical supply and electrical equipment” (2008).

Key competencies:

  • Supply and sale of electricity (B2B and B2C);
  • Management of departments and teams;
  • Work with market mechanisms (NCRECP, electricity market of Ukraine);
  • Experience in interacting with consumers of different categories;
  • Analytics, tariff formation, contractual work;
  • Development and implementation of customer service development strategies.
Lecturer's presentation

Lecture content:

  1. Introduction
  2. Regulatory framework
  3. Structure of a commercial offer
  4. Criteria for selecting a supplier
  5. Formal pricing
  6. Payment terms
  7. Tolerances and imbalances
  8. Penalties
  9. Possibility of switching to another supplier
  10. Quality of service and services
  11. Conclusions
  12. Active links (NPA, standards, resources)
  13. Glossary
  14. Questions for self-testing

 

1. Introduction

A commercial offer is a key document in the process of selecting an electricity supplier. It defines the rules of interaction between the consumer and the supplier, and also forms the conditions on which the cost of the resource, the financial security of the enterprise and the quality of service depend.

As a representative of LLC «PRET Service Energozmin», I would like to share my experience in forming commercial offers and the criteria for selecting a supplier.

LLC «PRET Service Energozmin» is a supplier of energy resources for business, which has been operating in the energy market for about two years. During this time, the company has managed to establish cooperation with more than four thousand enterprises throughout Ukraine.

The main areas of activity of the company:

  • supply of electricity;
  • import of electricity;
  • supply of natural gas;
  • provision of RES-service;
  • purchase of surplus generated electricity according to the mechanism of an active consumer;
  • support of cogeneration plants and solar power plants with hybrid systems.

 

2. Regulatory framework

The Rules of the Retail Electricity Market (clause 3.2.8) clearly stipulate what the supplier’s commercial offer should contain. Before signing the contract, the consumer is obliged to familiarize himself with its terms, understand his rights and obligations, choose the appropriate option and indicate it in the application for accession.

In fact, a commercial offer is an official document from an electricity supplier that is provided to a potential client for the conclusion of a contract. It sets out all the key aspects of cooperation:

  • supply conditions,
  • tariffs,
  • volumes of electricity,
  • terms of validity,
  • procedure for payments and other essential conditions.

Thus, a commercial offer is the basic document on the basis of which the consumer makes a decision on cooperation with a particular supplier.

 

3. Structure of a commercial offer

The commercial offer of an electricity supplier determines all the key parameters of cooperation.

It must contain the following mandatory elements:

  • Electricity cost — clearly specified price (fixed or formula).
  • Payment method — prepayment, scheduled payments, postpayment.
  • Invoicing and payment terms — calendar terms and conditions for their implementation.
  • Payment for distribution services — determination of who pays the tariff to the distribution system operator (consumer directly or through the supplier).
  • Penal sanctions and liability of the parties — conditions for charging penalties, fines or compensations.
  • Term of the contract and the procedure for extension — when the contract begins to operate, how it is extended.
  • Taking into account benefits and subsidies — the mechanism for their application for the relevant categories of consumers.
  • Possibility of supply to protected consumers (hospitals, military units, critical infrastructure facilities).
  • Other conditions — depending on the type of supply (general conditions, supply of universal services or “last resort”).

The following are attached to the standard contract:

  1. Application for accession — indicating the technical characteristics of the metering points, their addresses, capacities, metering group (A or B).
  2. Commercial offer — actually a document with the terms of supply.
  3. Order for supply volume — agreed forecasted consumption volume.

Important: the supplier’s offers must be divided by conditions:

  • by the method of determining the price (fixed or formula),
  • by the mechanism payment for electricity,
  • according to the procedure for payment for distribution services.

The terms must be stated clearly in order to avoid double interpretation and controversial situations.

 

4. Supplier selection criteria

Key criteria According to the experience of «PRET Service Energozmin»:

    • Business reputation, experience and security

Cost of electricity

  • Transparency of price formation.
  • Availability of a fixed or formula pricing model.
  • Competitiveness of price offers.
  • Payment terms and their variation
  • The ability to choose the method of calculation: prepayment, postpayment, ten-day payment.
  • Convenience of payment schedules for business.
  • Supplier’s margin
  • The size of the mark-up (usually no more than 1%).
  • It is possible to reduce the margin for large volumes of purchases or long-term contracts.
  • Tolerances and responsibility for imbalances
  • Permissible deviations from the ordered consumption volume without penalties.
  • Conditions for compensation of imbalances.
  • Possibility of switching to another supplier
  • Flexibility in changing supplier without additional penalties.
  • Minimization of bureaucratic obstacles.
  • Penal sanctions
  • Terms of liability of the supplier and the consumer for breach of contract.
  • Transparency of mechanisms for calculating fines.
  • Quality of service and services
  • Availability of a personal manager.
  • Speed ​​of response to requests.
  • Availability of an online account and services (bills, consumption control, calculators).

When choosing a supplier, it is important to evaluate not only the price, but also the complexity of the offer – flexible conditions, reputation, experience, ability to ensure continuity of supply and quality service.

 

5. Formula pricing

One of the key elements of the supplier’s commercial offer is the price for electricity. It can be determined fixedly or formulaically.

Formula pricing allows the supplier to adjust the cost of electricity depending on changes in market conditions.
This can include both changing the cost of electricity itself and adjusting other components.
This approach is especially relevant for long-term contracts, as it simultaneously provides:

  • flexibility in responding to market fluctuations;
  • transparency and predictability of costs for the consumer.

In commercial offers, the final cost of electricity is calculated taking into account the weighted average purchase price on the wholesale market “day-ahead” (DAA).

For the convenience of customers, the company PRET Service Energozmin periodically provides updated information on changes in the price of energy resources, referring to detailed market analytics.

Formula for calculating the actual price for consumers of group B

Tfact (UAH/kWh) = ТРДН+Тпер+Тр+Тпост

where:

  • Tfact is the actual price of electricity approved by the National Commission for the Regulation of Energy and Power Generation (the only one for the whole of Ukraine, currently 0.68 UAH/kWh);
  • ТРДН is the price of purchasing the resource on the “day-ahead” market;
  • Тпер is the transmission tariff (determined by NPC Ukrenergo);
  • Тр is the distribution tariff (set by the distribution system operator – Oblenergo);
  • Тпост is the supplier’s tariff (margin or mark-up).

 

6. Payment terms

Payment terms are an important component of a commercial offer, as they allow enterprises to manage their own financial flows more flexibly.
Different electricity suppliers offer different payment options, and the financial stability of the consumer company depends on the right choice.

Typical payment terms:

  • Prepayment – the consumer makes an advance payment before delivery. This option usually allows you to get a more favorable price.
  • Payment after the fact – the payment is made after actual consumption. This is more convenient for the client, but may involve additional risks for the supplier.
  • Payment by the tenth of a decade is an intermediate option when payments are made in installments during the month.

«PRET Service Energozmin» in its commercial offers offers flexible payment schedules, which allows clients to choose the most convenient option – depending on financial flows and the specifics of the business.

Supplier’s margin

Another important element in the formation of the final price is the supplier’s margin – that is, the markup that he adds to the purchase price of electricity.

  • As a rule, the supplier’s margin is no more than 1% of the total cost of electricity.
  • It may vary depending on the volume of purchase or the terms of the contract.
  • For large consumers or long-term agreements, it is often possibleo reduce the margin.

It is important to remember: too high a margin can significantly affect the final price for the client and make cooperation economically unprofitable.

 

7. Tolerances and imbalances

Another key component of a commercial offer is the conditions for imbalances and tolerances.

  • Imbalances occur when the actual consumption of the enterprise differs from the planned one. This can lead to additional costs, as higher prices are applied in the balancing market to cover such deviations.
  • The supplier’s responsibility for imbalances is of fundamental importance: if it is he who assumes the risks of imbalances, the consumer avoids additional penalties and can plan his expenses more predictably.

Tolerances are permissible deviations from the ordered volume of electricity without the application of penalties.

For example:

  • If the tolerance is ±5%, then excess or underconsumption within these limits will not lead to additional costs.
  • If the deviation exceeds the specified level, the consumer may receive a fine or additional payment for imbalances.

Thus, the presence of adequate tolerances in the contract allows the enterprise to significantly reduce the risks associated with unpredictable fluctuations in consumption.

 

8. Penalties in a commercial offer

Penalties are an important element of any commercial offer for the supply of electricity. They establish the liability of the supplier and the consumer in cases of non-fulfillment or improper fulfillment of contractual obligations.

The main grounds for applying penalties:

  • Delayed payments — untimely payment of funds for consumed electricity.
  • Non-compliance with supply conditions — for example, violation of schedules or declared volumes.
  • Breach of contractual terms — other cases of failure to fulfill obligations specified in the contract.

What should be specified in the commercial offer?

  • Mechanism for calculating penalties (interest rate, calculation procedure).
  • The maximum amount of the penalty is clearly defined.
  • Cases in which penalties are applied or vice versa — are not applied (for example, in the case of force majeure).

It is important that the conditions for penalties:

  • complied with the current legislation of Ukraine,
  • coordinated with the terms of the contract between the supplier and the consumer,
  • were transparent and unambiguous to avoid double interpretation.

Clearly prescribed sanctions protect both parties – the supplier guarantees timely payments, and the consumer receives confidence in the stability of supply.

 

9. Possibility of switching to another supplier

The choice of electricity supplier is not final – the consumer has the right to change it at any time. This right is guaranteed by Ukrainian legislation and is an important element of a competitive electricity market.

Why is this important for business?

  • Market conditions are constantly changing: fluctuations in DAM prices, changes in transmission and distribution tariffs, the emergence of new players on the market.
  • It is important for businesses to be able to react quickly and switch to a supplier that offers more favorable tariffs or more flexible conditions.

It is critical that the commercial offer:

  • does not include large fines for early termination of the contract,
  • does not contain excessive bureaucratic restrictions that complicate the transition,
  • prescribes a procedure for changing suppliers: notice periods, payment procedures, and closing obligations.

Suppliers that provide maximum flexibility in the matter of transition are more attractive to customers and create the basis for a long-term partnership based on trust.

 

10. Quality of service and online services

Quality of service is one of the key factors when choosing an electricity supplier. It includes:

  • Cooperation with a personal manager – a representative of the energy company who accompanies the client throughout the entire cooperation.
  • Speed ​​of response to requests – how quickly the consumer’s issues are resolved.
  • Selection of profitable financial models – assistance in choosing the optimal payment terms and contracts.
  • Professional level of support – providing high-quality advice and assistance in unforeseen situations.

A well-organized service allows the enterprise to avoid problems and ensures comfortable interaction with the suppliercom.

Modern online services greatly simplify cooperation with consumers. They allow:

  • to conveniently manage contracts;
  • to make online payments;
  • to monitor costs and consumption in real time;
  • to quickly submit applications for the supply of energy resources;
  • to access accounts around the clock.

Example: at PRET Service Energozmin, customers have access to electronic services – a personal account, calculation calculators, and tools for tracking costs. This provides convenience, transparency, and ongoing support in their work.

 

11. Conclusions

A commercial offer is not just a “price for electricity”, but a set of conditions that determine economic efficiency, security and quality of supply.

The right choice of supplier is based on a combination of cost, payment terms, reputation, transparency of sanctions, availability of tolerances and level of service.
TOV “PRET Service Energozmin” demonstrates that a competitive commercial offer is a balance between price, flexibility and quality.

 

Active links

Glossary of key terms

Commercial offer – a document containing the terms of electricity supply (price, payment method, terms, sanctions, etc.) and is the basis for concluding an agreement between the supplier and the consumer.

Application for accession – a document in which the consumer confirms accession to the terms of the agreement and indicates the characteristics of his consumption objects (capacity, addresses, groups A/B).

Fixed price – an unchanging price for electricity throughout the supply period.

Formal pricing – a mechanism for determining the price taking into account market indicators (for example, prices on the DAM plus/minus percentage).

CDAM (DAM price) – the price of purchasing electricity on the “day-ahead” market.

Tolerance – an allowable deviation from the ordered volume of electricity for which no penalties are charged.

Imbalance – the difference between the actual and planned volume of electricity consumption.

Supplier margin – the supplier’s mark-up, which forms its profit as part of the final price for the consumer.

Universal service provider (USP) – a state-designated supplier that provides electricity to household and small non-household consumers at regulated tariffs.

Supplier of last resort (SLR) – a supplier that cannot refuse to conclude a contract with a consumer in cases where the consumer has lost another supplier.

Self-test questions

What is a commercial offer for electricity supply and what are its main components?
What documents are attached to a typical electricity supply contract?
How does a fixed price differ from formula pricing?
What are tolerances and why are they important for the consumer?
What criteria should be considered when choosing an electricity supplier?
How is the actual price for electricity formed (basic formula)?
Why is the supplier's margin an important factor and how does it affect the final price?
What is the role of the supplier of "last resort"?
What penalties can be provided for in a commercial offer?
Why is the quality of service and the supplier's online services of strategic importance for business?

Share on social networks: