Electricity has made life so much easier for us today. From commerce and industry to household appliances, daily lives have been simplified all thanks to this commodity. However, every good thing comes with a price and the price for this commodity is the price (pun intended).
We can all agree that electricity is an essential commodity and one that nobody should be made to do without. We will also agree that the cost of electricity can make some people not enjoy it to the fullest. They may be forced to curtail the use of some appliances or even do without them completely.
However, there are some ways through which you can get the best of this commodity. One of those ways is by getting the best pricing from your supplier. The options are variable electricity price or variabel pris på strøm in Norwegian, fixed price, or spot. You can check the pros and cons of each option to make an informed decision.
In this article, we will focus on variable electricity pricing, the features of this agreement, and the advantages and disadvantages in comparison to other options.
Understanding Electricity Pricing
Although we stated that this article is focused on variable electricity pricing, it is important to understand the different types of pricing so that you can understand the option in focus.
There are 3 major types of contract agreements for payment for power in Norway and they are spot price, fixed price, and variable price.
Spot Price
This refers to the amount that the supplier pays for power per Kilowatt/hour. This amount fluctuates from time to time based on the demand and supply on the Northern European Electricity Exchange Nord Pool.
Spot price is like the floating interest rate on a mortgage because it is affected by market conditions. This price is not predictable because of the fluctuation in the market. However, over time, this contract option remains the cheapest energy contract that’s available.
Fixed Price
As the name implies, the amount per kilowatt does not fluctuate even though the contract is based on the electricity price at the Nord Pool. So when you sign up with a supplier for a specified period, your bill remains unchanging throughout that period. Bear in mind that energy suppliers usually set a higher price with this agreement than if you choose the first option which is always going with the current market price.
This is similar toa fixed interest rate on a mortgage. With this agreement, your bills are predictable throughout the contract. However, your bills are likely to be higher than if you have chosen the one dictated by market conditions.
This agreement can be locked in for a few months or as long as 5 years. You cannot cancel the contract before the expiration of the locked-in period. However, if you decide to terminate the contract, you will have to pay a fee which is usually high.
Variable Price
This is a cross between spot price and fixed price. Although itfollows the fluctuation in the prices obtained on the energy exchange, the rate of its fluctuation is higher than that of spot prices. In addition, although this cost is determined in advance like in the fixed price agreement, it is only fixed for at most 4 weeks per time. This makes it different from the fixed rate agreement which can be fixed for 5 years.
So practically, energy cost per kilowatt/hour for the variable rate agreement cannot fluctuate faster than 4 weeks at a time. The good part is that your supplier must inform you at least 30 days before any price change (whether increase or decrease).
So this gives you some predictability and flexibility at the same time. However, your bills over time may be higher with this agreement than the one based on current market rates.
Research has shown that the majority of homes in Norway use either the fixed rate or current market rate agreement while only 20% use the variable rate contract as of 2022. Read this article for more insight into electricity pricing in Norway.
Additional Costs of Power
People who have spot price contracts usually see the additional charges or fees that they have to pay to pay to their energy supplier. Additionally, their bill statement specifies the amount they pay as energy tax to the government.
For variable rate contracts, on the other hand, the consumer does not know the specifics of their bill. This is because everything is lumped together into the cost of power per kilowatt per hour. So whether you pay annual fees or surcharges, you will not know the breakdown because all you get is a lump sum.
Advantages and Disadvantages of Variable Electricity Prices
According to reports from the Consumer Council 74% of consumers that subscribe to variable rates do not know how much they pay per kilowatt/hour. This is mainly because all their bills are lumped into one sum. However, some people still use this option which means that there are advantages to this option.
We cannot categorically say that one option is better than the other; it all depends on what the consumer has to pay in the long run. So let us examine the pros and cons of variable electricity rate contracts:-
Advantages
The following are the advantages of this option:-
- It provides an option that is more predictable than the contract that’s based on current market rates while at the same time offering some flexibility that allows the rate to drop or increase.
- The predictability comes from the fact that you can have a fixed rate for at least 4 weeks before your rate changes.
- There is no lock-in period where you cannot cancel the contract; you can cancel at any time and you wouldn’t have to pay any fees.
Disadvantages
The following are the disadvantages of this option:-
- Has proven to be more expensive over time- Statistics have shown that a spot price contract is the most affordable option for energy supply. You can pay as much as 2 or 3 times more for this option over a period of time than with the spot price option.
- Your prices cannot change immediately even if market rates drop; you have to wait for 4 weeks before the price reduction can be effected for you.
- You will not know the specifics of your energy bill because everything is combined into one lump sum.
From our analysis above, you can see that this option is not the best for you. In addition to that the Consumer Council of the nation recommends against choosing this option. The reasons for this are points 1 and 3 of the disadvantages stated above.
Tips for Choosing an Electricity Supplier
Before we conclude this piece, find below some tips for choosing the best energy supplier for you:-
- Check out as many suppliers as possible so that you can compare their rates and terms of agreement.
- Check their license to be sure that they are certified to supply electricity in your region.
- Check the range of their service
- Compare prices and services rendered
- Research their customer service culture and what current and past customers have to say about them.
You can visit https://www.forbrukerradet.no/strompris/ for more information.
Conclusion
We have taken time to discuss the different pricing options that one can get for electricity. Thankfully, if you do not like the current agreement that you are on, you can switch to another one at the expiration of the contract. We recommend that you do not wait for the contract to end before you start shopping for a supplier.
We have shared tips that will enable you to make an informed decision as you go shopping for an electricity supplier. Take your time and do your due diligence so that you can get the best rates and conditions on your new contract.