Electricity package choice depends on winter consumption habits

Whether households should choose a fixed-price electricity package or one linked to the market depends largely on their consumption habits, electricity sellers told ERR. Some sellers said customers have increasingly begun to prefer fixed prices.

Market electricity prices are unpredictable, but one thing is clear: electricity is more expensive during the cold and dark period. Last winter, consumers buying electricity at the market price faced particularly difficult conditions in January and February, when price peaks repeatedly rose to several dozen cents per kilowatt-hour. The average market price was 15.4 cents per kilowatt-hour in both January and February, excluding value-added tax.

In the previous year, February was the only month when the average price exceeded 15 cents per kilowatt-hour.

No one knows exactly what the coming winter will bring. Electricity sellers said market prices are always unpredictable, and that this is nothing new. If prices could be forecast precisely, there would be little point in having a market, they noted.

However, the sellers who spoke to ERR said there are more factors than usual this year that could affect electricity prices and make them even harder to predict.

“This year, periods of high peaks can be forecast because of red flags in global markets. Futures prices also reflect this, standing at levels similar to or slightly above those of last winter. But in the end, it is like looking into a crystal ball, because it is impossible to forecast the weather for the coming winter today,” said Timo Tatar, head of Ignitis Eesti.

This raises the question of whether households should choose a package that is more dependent on the market or one that offers greater independence from market prices. There is no clear answer, however, because the best option depends on how a person uses electricity.

“If electricity costs are not an important part of a household’s budget, for example, because the person lives in an apartment and has low consumption, there is not much difference between choosing a fixed-price or market-priced package. The financial difference is small. Choose whichever option feels right. You may gain or lose, but the stakes are not high,” Tatar said.

If electricity is a significant expense, such as when a heat pump is the main or only source of heating, Tatar recommended a fixed price. It provides predictability and helps avoid large bills caused by price peaks.

“You may pay more than the market price, but you may also pay considerably less. What matters to you is managing your costs,” Tatar said.

However, a market-priced package may be more suitable if consumption can be managed substantially, for example by charging an electric car, or if the household has an alternative heating source, battery storage or another form of flexible consumption. In such cases, consumers can make use of cheaper hours or periods, Tatar said.

Tiit Hõbejõgi, a member of Enefit’s management board, also said people should choose an electricity package according to their risk tolerance and consumption habits.

“A fixed-price package is primarily suitable for people who do not adjust their consumption according to market prices. It is also more suitable for those who consider predictable costs important and want to avoid possible price peaks,” he said.

“A market-priced package may be suitable for people who are prepared to accept price fluctuations and who can shift their consumption to cheaper hours,” Hõbejõgi added.