Skyrocketing electricity is expected - binda may become even more expensive

In southern Sweden, the October price for electricity has so far been around SEK 1.45/kWh, according to the Nord Pool electricity exchange, net of VAT and other charges. It is clearly higher than during the winter months of January and February. In the rest of Sweden, the price increase is smaller.

The forecasts point to a very expensive winter at the moment, based on the contracts for the future purchase of electricity. Not as bad as the crisis winter of 2022/2023, but not far from there.

The reason is expensive gas, which is widely used to produce electricity in, for example, Germany. Less water in the power reservoir is another factor.

Binding the agreement would be good, maybe the occasional electricity customer thinks. And there are companies that these days are happy to offer fixed contracts, with an extra premium.

But it may be too late and electricity price assessors advise against it, unless you want to guard against a real crisis.

A fixed contract for a year currently costs around 30 percent or up to SEK 10,000 more in a year for a home owner with the larger electricity companies, than if the variable monthly price follows the current forecasts.

"Our experience is that people like to compare a fixed price agreement with a historically expensive month in terms of electricity price, and as a consumer do not see how the agreement affects the cost during the entire period in which you have fixed your electricity price," says Maria Erdmann, CEO of God El, in an email response.

A shorter winter contract could be a variant. A fixed December-April contract now costs between SEK 1.81 and 2.17/kWh including VAT at the electricity company Bixia, most expensive in electricity area 4. This can be compared with the current winter forecast of around SEK 1.80 including VAT in Southern Sweden.

"In my eyes, I don't recommend it," says Bixia's electricity analyst Johan Sigvardsson.

Then it is also about levels that have so far caused politicians, regardless of color, to promise electricity price support, he notes.

"It's as always with human psychology, mortgage interest rates or electricity prices, people start thinking about binding when it has already risen quite a bit," says Sigvardsson.

The electricity company Tibber, which lives by selling variable price agreements, has calculated different outcomes of fixed versus variable electricity prices with hindsight. Since 2020, it has paid off to bind only on a few occasions, most notably in 2021, before Russia's large-scale invasion of Ukraine.

"Fixed price can be a fantastic deal. But then in practice you need to commit before the market has already priced in the risk of higher electricity prices," says Tibber founder Daniel Lindén.