Several electricity firms in Norway have dropped fixed-price agreements, while others are pricing deals well above the market value to prevent being caught out by rising energy prices, financial publication Dagens Næringsliv (DN) reports.
Most energy generated and consumed in Norway is hydroelectric and low reservoir levels, and an uncertain energy picture in Europe as a result of the war in Ukraine means there will likely be very high prices for power in the autumn and winter.
“It is becoming increasingly difficult to secure fixed-price agreements for end-users,” CEO of Rauma Energi, Alf Vee Midtun, told DN.
Customers in south and south-west Norway are the least likely to be able to secure a fixed-price agreement due to substantial price differences for energy in southern and northern Norway.
“There have been extraordinarily high prices and extreme volatility in the market recently. This means that we do not recommend our customers to enter into a fixed-price agreement right now,” Kristian Helland, product and business development director at Lyse Energi, said to DN.
High price volatility can make it harder for energy firms to hedge their bets, as if the cost of energy is considerably below the fixed term agreement, customers can trigger a “get out” clause, but if the cost of energy is higher than the fixed-price, firms have to absorb the costs.
“Yes. When prices fluctuate as much as they do now, we have great challenges in securing prices. And the customer is always right. If a customer has entered into a fixed-price agreement with us, and the price falls significantly in a short time, the customer has a 14-day right of withdrawal and can withdraw from the agreement. But we can not wait for 14 days to secure ourselves. It will be completely unsustainable,” Midtun from Rauma Energi explained.
With a lack of competitive fixed-price deals, consumers, therefore, have to opt for spot agreements where they pay the raw cost of energy that the supplier pays, but with grid rent, tax, and other fees applied.
Energy price analyst Tor Reier Lilleholt from Volue Insight has said that it wouldn’t make much financial sense to enter into a fixed-price agreement.
“Yes (my own fixed-price deal is expiring soon), and I have followed closely to see how fixed prices have developed. They are now extremely high. We are talking 30-40 øre above market price. This means that the players do not take any risks and make a lot of money. It is not relevant for me to enter into an agreement at these levels,” he told DN.