Determining the best power plan for the lowest expenses is challenging. Generally, some people state that the best course of action is getting fixed energy bills, which will offer you the exact amount you will pay throughout the months.
Still, before we continue, it is essential to understand that exact electricity plans are perfect for people who wish to avoid fluctuations, which are common when taking spot or variable price options. We recommend that you click here to learn more about the federal electricity contracts you can choose.
In the following article, we wish to explore everything you should know about fixed-rate plans, including whether they are worthwhile, their advantages and disadvantages, and who should choose them. Let us start from the beginning.
What Is Fixed-Price Electricity?
When you sign an agreement with a specific electricity supplier, the next step is choosing the perfect agreement that will offer you peace of mind. Most people choose the spot price, which follows the price levels depending on the electricity exchange market or Nord Pool.
The spot prices change throughout the day, following each hour, affecting the market’s overall development. As a result, significant fluctuations will affect your energy bill at the end of each month.
Although spot price is the cheapest solution available on the market, you should know that most suppliers will charge you mark-up and stable amount, which is their way of earning profit.
Choosing Fixed-Price Agreement
On the other hand, you can directly choose this agreement with the supplier. It means you will bind yourself for a specific price per kWh for a certain period, meaning you can avoid fluctuations, price peaks, and drops.
A flat rate means paying the same amount for every kilowatt-hour you use each month. We can compare it to a fixed interest rate when taking a loan. Although you risk the agreement becoming highly expensive at some point throughout the process, you can create additional predictability to your finances.
The fixed price of electricity will not change around the clock, the same as a spot price. Even when you choose a price, the invoice may differ because the consumption changes each month depending on your specific needs.
Remember that this is the most expensive electricity agreement you can choose. The main reason for that is that the price is always set at a higher point compared with the overall market price. Electricity suppliers who offer fixed agreements are taking a significant risk by allowing you to sign the agreement in the first place.
It happens because the fixed price for each kilowatt-hour can be lower than the purchase price at some point due to market fluctuations, meaning a supplier will lose money throughout the process.
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Lock-In Period
Remember that an agreement requires a specific term, meaning how the agreement will remain valid throughout the process. We are discussing a lock-in period, meaning you will bind yourself to this agreement that can start from three months to five years.
Some suppliers limit the lock-in period to one year because the prices can increase, meaning you will pay lower than the market. You should know that you cannot change the supplier during the lock-in period and must pay the price per kilowatt-hour.
Suppose you wish to change a supplier before it expires. In that case, you must pay a significant termination fee. We are talking about breakage fees, which can cost between five hundred and a few thousand kroner.
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Pros And Cons Of Fixed-Price Agreement
As mentioned above, a fixed price option will provide additional predictability. Although it is an expensive solution, you can spare a similar amount each month without considering additional expenses or fastpris due to external factors that may affect your situation.
For instance, spot price options depend on supply and demand, meaning the hourly changes can directly affect your situation. At the same time, seasons will also affect the overall value, meaning that during cold winter days, people are more likely to use electricity, meaning the price of kilowatt-hour will peak.
However, entering a fixed-price agreement for a short period is wiser in some situations. According to statistics, 2018 was the year when it was better to have a fixed price due to a significant increase in market price.
During these periods, electricity prices in Norway were low, but the amount increased significantly due to inflation. Suppliers did not foresee this, especially since the market prices have risen significantly in a short while. As a result, people with fixed agreements saved money by paying smaller amounts for each kilowatt-hour.
Since the fluctuations are common in Norway, especially since the changes happen due to numerous external factors and reasons, you should know that some suppliers have stopped offering fixed-price agreements. The main reason is that they did not want to fail to predict potential increases, meaning the losses could devastate them.
At the same time, they could not increase the fixed amount to a point where they would protect themselves against any situation since the price per kilowatt-hour would reach the highest amount, meaning people would avoid them altogether.
Suppose you live in Northern Norway; you can enter a fixed-price agreement. The main reason is that the electricity prices are lower and more stable in the north due to fewer users.
The government is continually facilitating fixed prices for electricity that are more affordable than other agreements you can choose. Therefore, you should remember that things may change significantly, meaning the fixed options may disappear entirely in Norway.
Final Word
As you can see, a stable electricity agreement has specific advantages and disadvantages that may affect monthly spending. Still, it would help if you calculated whether you would save money by paying the stable amount each month or by paying fluctuated options that could affect your situation altogether.
You should choose a fixed-price agreement to achieve additional predictability, no matter the cost. However, you can only terminate the agreement once it ends, which is another essential consideration to remember.
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