Many variables go into deciding on the best electricity contract to keep the costs down. A few factors to prioritize include the terms and conditions, the rates and fees, and the contract length. Gaining insight into how the contract works is essential to ensure the most savings. 

With the options for either short or long-term electricity plans, weighing the advantages against the downsides can get you started with the most suitable plan at the moment. Still, you may see the need to change down the road for the most benefit in the future. Read here about comparing the cheapest electricity prices. 

Short-Term Electricity Supply Contracts 

Some customers prefer short-term electricity supply contracts. These are less than a year, with some being month-to-month, others include three- or six-month plans. The rates for these contracts will be based on the duration you choose. They can stay the same for the entire length or fluctuate according to the market. 

A month-to-month plan is referenced as a “spot agreement” or variable contract since the rates have the potential to change every month. As the customer of a variable contract, you will most likely choose to compare rates more frequently.  

While you can benefit if the market drops with considerably lower rates, you’ll also be stuck with higher costs if the spot price spikes. Here are the benefits you may see with a short-term electricity supply contract. 

• Sign on when rates are low

The month-to-month contract offers the opportunity to sign on when rates are at the lower end of the scale. It requires researching and paying attention to which times of the year see the greatest customer demand. Instead of renewing inthe peak season, you can plan to sign a new contract when the market is slow. 

• Flexibility to compare suppliers and plans

With a short-term contract, you have the flexibility to change suppliers and plans without the possibility of a penalty. You can do so as frequently as you wish without consequences. That’s not true with a fixed-rate contract and more complex with a long-term commitment. These make sense if you move often.

Here are the risks associated with signing on for a shorter-term electricity supply contract.

• Renewing at a higher rate

It’s possible to sign on with a short-term, month-to-month option at a reasonably low rate, but that doesn’t mean you’re locked in at that price. That strøm billig (electricity cheap) rate will be good for the month, but the next month could spike. The rates will change each month that you renew.

• Renewing often is necessary

With a short-term contract, the commitment is brief. That means you must renew much more often than with a long-term commitment. The renewal date can come and go, but you could easily forget to sign on. 

• Difficult to develop a budget

With rates changing month to month, developing a predictable budget is difficult. 

Long-term Electricity Supply Contracts

A long-term electricity supply contract is a commitment that can last from 12 months or as long as 60 months. The most common plans customers opt for include 12, 24, and 36-month plans. Long-term contracts are often taken at a fixed rate instead of a variable contract. 

That means the rate will stay the same whether the market rises or falls. Because of the commitment, the plans offer stability with utility costs every month. Here are the benefits of the long-term electricity supply contracts.

• The rate is predictable and stable each month

With a long-term contract, you will pay a consistent monthly rate for the entire length of the plan. If the spot price were to spike during a high-peak period, you won’t be affected. This predictability allows the ability to budget monthly obligations, making expenses more manageable.

• Savings into the future

When you have a contract for an extended period, that means savings over the long term if you sign on when the rates are low. You won’t need to worry about shopping or renewing the plan for a lower rate, saving time and hassle with research and comparisons.

Here are the potential downsides associated with accepting a long-term electricity supply contract.

• The rate stays the same regardless of the market

If the market or spot price drops, you can’t take advantage of a lower rate. Breaking a contract to lower your rate could have repercussions and penalties. 

While you might be stuck paying the higher rate with your long-term contract for some time, consider the possibility that the market can also spike, leaving you with the advantage.

• You have a considerable commitment

A long-term contract can last as long as 60 months or five years, making it a significant commitment compared to shorter-term contracts. That can mean challenges and the possibility of penalties if you become unhappy with the contract and want to change suppliers before the end of the term.

Regardless of which option you choose, it’s vital to fully understand your energy supply contract, read through each detail, and not rush into a commitment to avoid ending up dissatisfied. 

Speaking with the provider to have questions and concerns addressed and to have the conditions explained more concisely will make the decision-making process easier.

Variables To Consider Before Committing to a Contract 

Contract length is one variable to consider, but a few other factors will play a part in whether the plan is suitable for your situation. 

• Energy consumption

You can make more informed decisions concerning a plan when you have a better understanding of your energy use and when you use it the most. Some providers will supply a “free night and weekend” promotion. If you use it the most in the daytime, this won’t benefit you. 

• Previous contracts

You can use your experience with past electricity contracts to help with decision-making for plans. If these were beneficial and worked out well, they could do well again. Consider which parts were positive and what was a downside and compare these pros and cons to how your needs differ.

Final Thought

Whether a short-term or long-term contract is the better option for you will depend on your risk tolerance primarily. Choosing a short-term plan brings with it the opportunity for rates to drop considerably when the spot price goes down, but it also carries with it the risk of spikes in rates.

Each month, the rate could stay the same, or it could drastically change. That leaves little opportunity to plan a manageable budget. You can, however, compare and change providers and plans to get better rates as often as you like without the threat of a penalty.

With a long-term commitment, if you get in at a low rate, you’re locked in with that price for the plan’s duration. It’s a significant commitment, however. 

You can’t change if rates suddenly fall lower than what you have without breaking the contract, and that can come with penalties. The benefit is you can plan your budget and count on stable electric costs.

Duration is not the only variable to consider; it’s a primary consideration, but understanding your usage, reading the terms and conditions of the plan with the provider to understand the contract thoroughly, and reviewing previous plans to weigh the positive and the negatives as they apply to your current needs are all essential components to making the best choice.