How can rates be so far apart?
This has everything to do with the purchasing strategy of the companies. Providers such as Budget Energie and Greenchoice adjust their prices every month, Essent and Eneco in principle every three months and Vattenfall every six months. The longer that period, the sooner the suppliers on the wholesale market will start purchasing energy for those contracts. As a result, the customers of Budget Energie, at the time the only large company that charged monthly rates, were the first to notice this summer that the wholesale price had shot up. At that time, Vattenfall’s customers paid considerably less. They are now presented with the bill for that price peak. Customers of Budget Energie and Greenchoice have noticed in particular that the wholesale price has been considerably lower in recent months than during the summer peak. Their rate is going down.
I am with one of the expensive providers, do I have to switch now?
That seems logical, but there are important caveats. After all, there is one important new circumstance from 1 January: there is a price ceiling on energy. For gas, the government guarantees up to a maximum of 1,200 cubic meters per year that you as a consumer will not pay more than 1.45 euros per cubic meter. For electricity, there is a ceiling of 40 cents per kilowatt hour for the first 2,900 kilowatt hours. In 60 percent of all households, their entire use falls below the price ceiling. They therefore do not notice the differences between the providers.
But if the gas price drops significantly in the coming months, the rates at Budget and Greenchoice could be the first to fall below the price ceiling.
That’s right. But with variable energy contracts you as a consumer can leave with impunity at any time – with a notice period of thirty days. So if the price drops that far, you can still switch.
But for everyone who exceeds the price cap, are the differences between the rates relevant?
Yes. Because for everything above the maximum consumption you pay the market price. How much you ultimately pay for this only becomes clear at the end of the year. Then your energy company calculates how much gas and electricity you have used above the maximum. It charges the average rate that applied during the year. If your provider charges a high rate in January, this will affect the amount you pay for your usage above the price cap from the first day of the year.
But that does not mean that choosing a monthly rate is necessarily a smart choice. After all, the price can also rise sharply again. In that case, Budget and Greenchoice may become more expensive than Vattenfall again. There is another disadvantage to monthly rates. These make it much more difficult for energy companies to determine a reliable monthly advance. With a six-monthly adjustment of rates, winter months (in which a lot of energy is consumed) can be averaged with the summer months in which consumption is low. For the advance payment, that average consumption is deducted from the applicable rate. If a different rate applies every month, it’s all much more chaotic. Many customers of Budget Energie have noticed this in recent months. The chance that you suddenly have to pay a considerably higher advance in the meantime or have to pay a lot of money afterwards is therefore greater with monthly energy contracts.
You can also think a little bigger and switch because the government will then spend less on the price cap.
That is correct for now. And there is a good chance that this will also be the case throughout the year. But of course that is not certain. Should the wholesale price suddenly go up again towards the end of the year, the variable customers of Greenchoice and Budget Energie will ultimately be more expensive for the treasury than Vattenfall customers.
The price cap will be abolished again in 2024. Do you have to think about that now?
No, the consideration in 2023 is very different from that in a year without a price cap. But it is interesting to look ahead. Because on the wholesale market it is now quite expensive to buy gas for next year, while it will become considerably cheaper in the following years. Anyone who wanted to buy gas on Tuesday that will be delivered in 2027 will pay 35 euros per megawatt hour. That is one third of the price in 2024.
This is partly due to the fact that after that there will be more factories that can liquefy natural gas (LNG). Europe is now largely replacing Russian gas with LNG. It is therefore obvious that in the course of 2023 energy companies will start offering relatively long-term contracts with much more favorable rates than variable or annual contracts. After all, in a four-year contract, the high gas prices of 2024 are compensated by more favorable prices in subsequent years.