More annual energy contracts concluded now or wait and see?

More annual energy contracts concluded now or wait and see?

NOS News

  • Tom Ovekins

    Economics Editor

  • Tom Ovekins

    Economics Editor

The past few days have been difficult. There were really small providers here and there that offered an annual contract with fixed rates. I followed Energydirect yesterday. As of today, major energy supplier Essent is also offering a one-year pricing contract.

Other suppliers are expected to follow suit in the coming weeks. This means that after more than a year, there is again plenty to choose from on the energy market. This raises the question of whether it would be wise to fix your energy rates now. Or is it better to wait a little longer?

Certainty until after next winter.

Anyone who enters into an annuity contract now has a flat rate nearing the rate cap until mid-March of the next year. After a period of great uncertainty, this is undoubtedly attractive to many families. The price cap only applies to a certain level of consumption, and will expire at the end of this year.

“It’s a matter of risk assessment,” says Martien Visser, a professor of energy transition at the Hanze University of Applied Sciences who is also a collaborator with Gasunie. “I often compare it to fixing or holding a variable mortgage interest. The big question is whether you can afford it financially if rates go up sharply.”

On the other hand, most households are “protected” from price increases below the price ceiling for their entire consumption. “The government will protect you if the price doubles, but those who commit now won’t benefit from a further drop,” Visser says.

Below you can see the average price per cubic meter of gas

The price of gas on the wholesale market, where energy companies make their purchases, has mainly shown a decline this year. The price of gas that suppliers demand from consumers follows with some delay. But the gas market remains tense. For example, a hit on the French terminals where liquefied natural gas (LNG) arrives suddenly caused a jump last week.

Another uncertainty is the extent to which China will attract LNG shipments again this year. Much of the LNG that came to Europe in 2022 was originally intended for China. The Chinese resold these shipments because they needed less due to Corona measures, and Europe paid the highest price ever.

Another important uncertainty is the extent to which gas savings will continue by industry and households if the price continues to fall.

How long do contracts last?

New regulations have been in the works since last year to get suppliers to offer long-term contracts again. It should come into effect on April 1, and according to a spokesperson for the regulator ACM, that remains the ambition. “We are now busy looking at whether and how to achieve this.”

An important new rule is that canceling the energy contract will become more costly for consumers. This means less risk for energy suppliers.

According to suppliers and experts, the fact that consumers can cancel a contract with a small penalty and switch is the main reason why fixed-price contracts have not been offered for so long. With prices dropping, it will soon be interesting to cancel your contract and switch. This is the scenario where the supplier is left with a loss of expensive purchased power.

April 1st appears to be very tight, says Essent and price comparison site Pricewise. “We hope the new regulations will come into force in a few months,” says Jasper Houthuijsen, Director of Energymarkets at Essent. “It’s an important reason we already offer an annuity contract. Customers want certainty now that prices are down.” Hans de Kok, director of price comparison site Pricewise, doesn’t dare make any predictions: “We hope in the second or third quarter,” he says.

The new regulations likely won’t result in multi-year contracts being offered. The price can also be reduced if the risk of the supplier is reduced. “It definitely has a relieving effect,” says Houthuijsen. If suppliers have less risk, they can keep prices lower.

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