Home / Blog / Personal Finance

Comparing Electricity Contracts for Your Home in 2020 – An Informed Consumer's View

Also available in Suomi

Want an informed consumer’s view on comparing electricity contracts? You have come to the right place. There are many electricity comparison sites, but I have no ties to comparison sites or electricity retailers. I just want to offer an informed view, based on what I have found out and experienced as a consumer, of the best approach to getting a good price.

How the electricity price you pay is formed

The price you pay for electricity is made up of the distribution fee, the energy fee and taxes. In practice, the costs break down like this:

  • Distribution price/kWh (e.g. 2.46 c/kWh – charged by Turku Energia in 2019)
  • Distribution basic fee (e.g. 6.98€/month – charged by Turku Energia in 2019 for a 3X25 fuse size)
  • Energy price/kWh (e.g. 4.1 c/kWh – the part you can put out to tender)
  • Energy basic fee (e.g. 0€/month – the part you can put out to tender)
  • Electricity tax/kWh (e.g. 2.79372 c/kWh in 2019)

So a customer on Turku Energia’s distribution network pays 2.46 + 2.79372 c/kWh = 5.25372 c/kWh for electricity. In my case, I pay 4.13 c/kWh for energy on a fixed-term contract, so the price of electricity comes to 5.25372 + 4.13 c/kWh = 9.38372 c/kWh, plus the basic fees on top.

In the example above, the bigger share of the costs goes to distribution and electricity tax, which you can’t compare. The energy price is often about 40% of your electricity price, and it can vary significantly. In an electrically heated home, electricity is a significant part of the total housing costs and therefore worth comparing.

If you compare the energy part and switch retailers, you get separate bills for distribution and energy. The distribution bill always comes from the local network company that owns the grid.

Electrical energy

From the consumer’s point of view, the energy price is the most interesting, because it is the only part of the electricity price you can compare. Many factors affect the energy price, such as production costs and exchange prices. Electricity is sold on a power exchange, so the price of energy is no longer entirely local: from a Finnish consumer’s point of view, it is affected by electricity production in all the countries in the Nord Pool power exchange.

Nord Pool is a power exchange, organised as a limited company, jointly owned by the transmission system operators of the Nordic and Baltic countries (specifically Finland, Sweden, Norway, Denmark, Estonia and Lithuania).

Wikipedia

Electricity distribution

Distribution is handled by the local network company that owns the area’s distribution grid. For example, I live in Turku, and our network company is Turku Energia. You can’t compare distribution prices. The Energy Authority monitors that distribution prices are reasonable. There are still significant differences in distribution prices, and at the moment Turku Energia’s are clearly lower than Caruna’s.

Electricity distribution is a legal monopoly, and the local distribution company sets the distribution price.

Electricity distribution

Electricity tax

Electricity tax is paid on electricity. For households, it was 2.79372 c/kWh in 2019. The local network company bills the electricity tax together with the distribution price; in my case, for example, I see the electricity tax on Turku Energia’s bill.

VAT is charged on energy, distribution, electricity tax and the security of supply fee. The VAT rate has been 24 percent since 1 January 2013. VAT is usually itemised on the bill, but households don’t need to pay it any more attention, because the full amount including taxes has to be paid anyway and VAT can’t be deducted from anything.

Comparing electricity contracts

Where do I get the best price for energy, and should I choose spot-priced electricity or a fixed-term offer?

Let’s look at the contract types first, then the comparison sites and the different ways to get offers.

Comparing electricity contracts costs nothing but a little of your time, and you can switch retailers as often as you like. The exception is a fixed-term contract, which ties you to the retailer until the end of the contract period. The contract period is usually 12 or 24 months, which is fairly short, considering you wouldn’t want to spend time on electricity every month anyway.

Electricity companies take care of everything involved in switching retailers for you. Your new retailer terminates your current contract and checks the necessary details of your metering point with your network company.

Helen.fi

Contract types

Do you want a fixed-term or an open-ended contract? Do you want a price that stays fixed for the whole contract or one that follows the market?

An open-ended electricity contract has a variable price, where the price/kWh you pay changes.

  • Basic electricity products usually have a set price at the start, and changes are announced well before the price changes.
  • With market-priced electricity, the price may stay the same for a whole month, for example, and is announced a couple of weeks before the month starts.
  • With spot-priced electricity, the price is the Nord Pool power exchange SPOT price plus a premium announced in advance by the retailer. According to an article in Kauppalehti, spot-priced electricity is the cheapest way to buy electricity. Unfortunately, the article doesn’t go into details, and it would be interesting to see a calculator where you could check, with your own consumption, what your electricity would have cost at spot prices, for example over the last two years. I couldn’t find such a calculator, so I made my own analysis with historical data, see the next section. My view is that spot-priced electricity is not a profitable choice, at least when you have no way to time your consumption.

A fixed-price/fixed-term electricity contract usually lasts 12 or 24 months, and you pay the same price/kWh for the whole contract period. It is a great option if you want to know what you will pay for electricity every month and even out your energy costs a little. Compared with market-priced electricity, a fixed price has a smoothing effect, because you don’t pay a higher price in winter, for example, when prices rise due to higher demand.

In addition, both of the contract types above are further split into general electricity, time-of-day electricity and seasonal electricity. With general electricity you pay the same price regardless of the time. Time-of-day electricity usually has a more expensive price during the day and a cheaper price at night, when consumption is lower. Seasonal electricity usually has a more expensive price in winter, when consumption is higher, and a cheaper price in other seasons.

The spot price calculated with historical data

The Kauppalehti article mentioned above doesn’t explain how it concluded that spot-priced electricity is the cheapest way to buy electricity. Based on the conversations I have had, some favour spot prices and others fixed-term contracts, but nobody seems to have a proper analysis.

Historical power exchange prices can be downloaded as Excel files from the Data Downloads section of Nordpoolgroup.com. I downloaded Elspot Prices_2018_Hourly_EUR. Note that in this data the prices are in EUR/MWh, without VAT and without the retailer’s margin. According to Vattenfall’s spot electricity pages, the VAT rate is 24%, and the margin on their hourly contract is 0.29 c/kWh. Also note that the Nord Pool data includes all markets, and the times are probably not in Finnish time but in Swedish time. When you compare the c/kWh price calculated from the Nord Pool data for 1 January 2018, including VAT and margin, with the figures downloaded from Vattenfall’s site, which include VAT and margin, they match once you account for the one-hour time difference. You can convert the Nord Pool price with price/10*1.24+0.29c, which gives a c/kWh price including taxes and margin.

I downloaded hourly data from Turku Energia’s online energy service in monthly chunks for the whole of 2018 and put it side by side with the Nord Pool spot prices, so I could calculate a weighted average, in other words the average electricity price for the whole year for my consumption, assuming I had used spot-priced electricity.

On average, I would have paid 6.26 c/kWh for spot-priced electricity in 2018. The average spot price for the whole of 2018 was 6.09 c/kWh. So in my case consumption has clearly been slightly higher at the more expensive times. On my fixed-term contract I paid 4.13 c/kWh for energy in 2018, so spot-priced electricity would have been considerably more expensive. So I can’t recommend spot-priced electricity to anyone, at least in households like mine, where we have no way to shift heating to cheaper hours.

If you like, you can look at my Excel calculation here:

elspot-prices_2018_hourly_eur_calc.xls

Download

Average spot prices in recent years

  • 2017 4.41 c/kWh
  • 2018 6.09 c/kWh
  • 2019: 5.66 c/kWh (data up to 10 August 2019)

Heating with oil or electricity

Your choice of electricity contract and offer also depends on whether you heat your house with electricity or oil. With electric heating, you need clearly more energy, and then the kWh price of energy matters more than the basic fee in euros.

In my case, I can choose whether to heat with oil or electricity. Heating with oil, we use 8,000–10,000 kWh of electricity a year, and heating with electricity, consumption is around 20,000–24,000 kWh a year.

According to an article published by Motiva in 2010, the heating value of light fuel oil is 10.02 kWh/litre, and the typical efficiency of an oil boiler is 87%–90%.

The price of energy produced with oil is given by the formula: price per litre of oil / (10.02 * 0.87). This assumes 87% boiler efficiency.

At the time of writing, 11 August 2019, the price of heating oil is 0.92826 € / l (source st1.fi, ordering 1,500 litres of summer grade with a discount card). Then the energy price comes to 0.92826 € / (10.02 * 0.87) = 0.1065€, or 10.65 c/kWh. You can check the consumer price development of light fuel oil on the Statistics Finland website.

Update 7 March 2020: The price of heating oil has fallen and is now 0.84506 € / l, so the energy price comes to 0.84506 € / (10.02 * 0.87) = 0.0969€, or 9.69 c/kWh.

So oil is clearly cheaper than electricity at 5.25372c + 5.17c, or 10.42c.

Compared with my earlier electricity price of 9.38372 c/kWh, electric heating is of course the better option. Of my 23,000 kWh consumption, at least about 13,000 kWh is water heating (domestic hot water and water-based underfloor heating), so produced with oil it would have cost 13,000 * (10.29c-9.38372c) = 117.81€ more. Now, however, my fixed-term electricity contract is ending, and the energy price is rising from 4.13 c/kWh to 5.17 c/kWh with the best offer, an increase of 1.04 c/kWh, and my new electricity price would be 10.42372 c/kWh, so heating with oil pays off again.

Offers

The easiest way to get offers is to use comparison sites. Another way is to check the energy companies’ websites and use their calculators. A third way is to use offer prices negotiated by organisations; for example, a local homeowners’ association may negotiate an offer price, and rakentaja.fi also runs group tenders.

Note that electricity retailers such as Helen have also written articles about comparing electricity and link to their own contract page, where you can compare Helen’s different electricity products. That is not really comparing, though, because all the products are Helen’s own, and the prices are higher than through a comparison site.

Comparison sites

I have talked with several electricity retailers, and they honestly admit that you usually get a better price through a comparison site than directly from them.

Sites

Note that comparison sites are often run by companies running a profitable business. Their revenue model is often based on commissions that energy retailers pay them when a new contract is made through their site. Even though the service is free for the consumer, money flows to the comparison service. That is why comparison sites can afford to pay for ads, for example in Google for the search term “sähkön kilpailutus” (comparing electricity), and send visitors to their sites.

The exception is Sahkonhinta.fi, a service run by the Energy Authority. The Energy Authority is an expert agency under the Ministry of Economic Affairs and Employment. Even though sahkonhinta.fi is perhaps the most independent of the services, that doesn’t mean it gets you the best price or that it is the best service. Perhaps the opposite: a commercial, profit-making company has an interest in offering the easiest user experience and negotiating the best offers for its site, so that sales happen through it and it earns commissions. So competition between the different players, comparison sites included, is a good thing for the consumer.

Comparison site user experience

  • Kilpailutus.fi
    • Clear, but an annoying feature is that you only see the cheapest offer in each category and not the next one. Sometimes the cheapest offer may come from a company you don’t want a contract with.
  • Sähkövertailu.fi
    • Easy to use, and a nice feature is that you get a list of all the offers, not only the cheapest in a category. An annoying feature is that you have to click an offer before you see the monthly price and energy price, and the comparison page shows only the annual price in euros.

Comparing in practice

It is worth starting a little early, because switching companies can take at least a month. The new company terminates your old energy contract for you, but the switch often happens one month later at the earliest.

Comparing in 2019

In 2017 I took a 24-month fixed-term general electricity contract from Helen (Helsingin Energia) at 0€/month and 4.13 c/kWh, and it ends on 30 September 2019. After the fixed term, the contract of course continues automatically as an open-ended one, but at a steep price. The email I got from Helen gives the prices: “Prices of the open-ended contract: energy fee: 7.97 c/kWh, basic fee: 3.84 €/month”.

That is quite a price increase, so it doesn’t pay to sit still. Compared with the best offer, I would pay 7.97-5.17 c/kWh = 2.8 c/kWh more. With an annual consumption of 23,000 kWh, that is 644€ more a year. And that is with the same company selling the energy. Are they counting on customers forgetting to compare electricity again?

Unless otherwise agreed, a fixed-term sales contract continues as an open-ended contract after the fixed term expires, unless the seller and the user have made a new sales contract or either party has terminated the contract with two weeks’ notice

Helen.fi contract terms

Comparing the offers

Below is a list of the offers I found during my review period. In my case, consumption is about 18,000 kWh a year, so the effect of, for example, a 3€/month fee is (3€*12)/18,000 kWh = 0.2 c/kWh.

  • Helen offer by email 10 June 2019: 18-month fixed term 0€/month and 5.49 c/kWh
  • Helen offer by email 1 August 2019: 24-month fixed term 3.84€/month and 5.17 c/kWh
  • Helen website 1 August 2019: 24-month fixed term 3.84€/month and 5.69 c/kWh
  • Kilpailuttaja.fi 1 August 2019: 18-month fixed term 0€/month and 5.58 c/kWh (Helen)
  • Kilpailuttaja.fi 1 August 2019: 24-month fixed term 2.97€/month and 5.29 c/kWh (Loiste)
  • Sahkovertailu.fi 1 August 2019: 24-month fixed term 2.97€/month and 5.29 c/kWh (Loiste)
  • Sahkovertailu.fi 1 August 2019: 24-month fixed term 3.00€/month and 5.31 c/kWh (Lahti Energia)
  • Sahkovertailu.fi 1 August 2019: 24-month fixed term 1.50€/month and 5.48 c/kWh (Helen)
  • Sahkonhinta.fi 11 August 2019: 24-month fixed term 2.50€/month and 5.29 c/kWh (Helen)
  • Sahkomittari.fi 11 August 2019: 24-month fixed term 2.97€/month and 5.29 c/kWh (Loiste)
  • Sahkonkilpailutus.fi 11 August 2019: (no competitive offers)
  • Kilpailutuspalvelu.fi 11 August 2019: 24-month fixed term 2.9€/month and 5.39 c/kWh (Imatran Seudun Sähkö)

In the table below I have listed a few of the better offers and calculated the annual prices for two different annual consumptions. With a small annual consumption of 8,000 kWh, we see that the best offer is the one with a 0€ basic fee. With a larger annual consumption of 24,000 kWh, we see that the best offer is the one with the lowest c/kWh price, and the basic fee matters clearly less.

So if I continue heating with electricity, I will choose the 5.17 c/kWh offer, but if I order oil and heat with that, the 5.49 c/kWh offer with a 0€ basic fee is better for me.

At the moment I’m leaning towards continuing with electric heating, because I think it is likely that over the next 12 months I will be getting quotes for ground source and air-to-water heat pumps. If I choose either, I won’t have to wait for a whole year’s worth of oil in the tank to be burned. The price difference in favour of oil is only about 17€ a year, assuming the 90% boiler efficiency holds for my boiler.

On 18 August 2019 I made a 24-month follow-on contract with Helen at 5.17 c/kWh plus a 3.84€ basic fee. So I will be back to comparing in the summer of 2021.

Comparing in 2017

The plan was to compare the fixed-term offers available through online comparison sites.

At the time of writing, 19 October 2017, the cheapest offer was 0 eur/month and 3.9 c/kWh. When I checked on 29 October 2017, the cheapest price was 0 eur/month and 4.13 c/kWh. A pity that the better price was gone, but I ended up taking the 4.13 c price through sahkovertailu.fi, because it was still better than Turku Energia’s offer.

Turku Energia’s offer

4.22 c / kWh

1.5 eur/month basic fee

Offer valid until 25 October 2017. 2-year contract period

Kilpailuttaja.fi offers

Offers on the Kilpailuttaja.fi site for 8,500 kWh consumption with a 3 x 25A fuse size

  • 24-month fixed term
    • 0e/month
    • 3.99 c/kWh
    • Jyväskylän Energia
  • 12-month fixed term
    • 0e/month
    • 3.99 c/kWh
    • Jyväskylän Energia
  • Open-ended
    • 2.52e/month
    • 4.25 c/kWh
    • Vaasan Sähkö

Sahkovertailu.fi offers

  • 12-month fixed term
    • 0e/month
    • 3.93 c / kWh
    • Jaa Enemmän Oy -> not an actual electricity company
  • Update 29 October 2017
    • 0e/month
    • 4.13 c / kWh
    • Helen

Personal Finance

More in this topic