Niklas Hirmke & Karl Villanueva
Price Guarantee (Preisgarantie), even the term itself sounds reassuring. It’s one of those things that sound great in theory. As you’ll learn, it has become a way for traditional energy providers to keep their margins – literally at their customers’ expense. We should start thinking more of them as price lock-ins!
As consumers, we often think that we are saving money with a price guarantee. Nevertheless, we have to ask ourselves — why are these dinosaur energy companies and municipal utilities (Stadtwerke) so eager to give one? Why do gas stations not offer a price guarantee, when fuel prices change just as much as electricity prices?
The truth is, traditional energy companies love to give a Preisgarantie because it guarantees their profits. They have an army of analysts who buy electricity on average way below the price they set for your price guarantee. This is just one reason, why a Preisgarantie is a good thing for energy companies and municipal utilities, but not for the customers. We will explain in detail, why customers are better off without a price guarantee.
Price guarantees make us think that electricity prices are constant. But actually they change every minute, and every hour. This arbitrage, this margin is how traditional energy companies make money from your price guarantee.
As energy prices go up and down all the time, consumers are accustomed to checking for the price of gas or diesel when they refuel. When prices go up, the price of gas goes up. But when they go down, we also expect the price to go back down. In contrast, traditional energy providers try to keep prices fixed over the period of the contract. Therefore, customers don’t experience the benefits if prices drop, as those decreases don’t get passed along.
Ostrom passes electricity at cost, just a 6 € flat fee. We do not make more if you use electricity. That makes us one of the only energy providers whose incentive is for you to use less energy!
Now you can see below how much our competitors were offering as a “price guarantee” on December 31, 2021. Per kilowatt-hour prices were being set from 43.58 to an eye-watering 70.04 cents!
Moreover, these all had 12-24 month price lock-ins. Hence, compared to our 37.15 ct/kWh average for the year, you would have been overpaying 17% to 88% more for your electricity had you chosen one of these tariffs at the start of the year.
In contrast, Ostrom was priced at 38.27 ct/kWh at this time, and we reduced our prices 2x as prices lowered.
Energy contracts with price guarantees usually get offered between 12 and 24 months. While that might sound promising at first glance, customers get locked in for the duration of the contract. As a result of that, cancelling before the end of the duration is very difficult. Customers are not able to switch to a cheaper provider, but have to wait until their contract has expired.
Moreover, until this March 2022, it was a common tactic of traditional energy suppliers to have a cancellation period. When users forget, they would be renewed for another long contract.
Ostrom only has one tariff with no minimum contract period (Mindesvertragslaufzeit). That means you will always pay for only the energy that you use!
It’s not well known but there are actually different kinds of price guarantees. Don’t worry – we won’t bore you with all of them. What customers should know, is that a price guarantee never applies to all components of the energy bill.
The most common price guarantee, a so-called “limited price guarantee”, only covers about 48 % of all cost components. Therefore, more than 50 % of the components can be adjusted. Of course, those adjustments can also lead to price increases. That’s the main reason, that at the end of the contract period, this leads to an expensive and unexpected back payment (Nachzahlung).
With our transparent tariff and our app, we make it as easy as possible for you to track price changes and your consumption. That way you always know where you stand and never have year-end bill shock!
We at Ostrom buy energy from renewable sources on the energy exchange, on the so-called “spot market”. Without getting into too much detail here, participants can buy short-term deliverable energy on the spot market. Most of the energy companies and municipal utilities are not operating that way. They buy so-called “futures”, which are long-running energy contracts, that have a fixed price for a set delivery period.
But as a matter of fact, buying on the spot pricing is 14% cheaper in the last 8 years compared to futures.
This is why Ostrom pioneered a no-markup model for energy. While traditional energy companies want to perpetuate the image that futures and a price guarantee are cheaper, the facts show that even with spikes, consumers are better off with a flexible pricing model!
Do not get fooled into price guarantees by traditional energy companies and municipal utilities. Look for a transparent energy provider, that clearly states how the price is composed.
This is why Ostrom is one of the only providers that turn the energy industry on its head!
So if you want to get better, smarter and greener energy, switch to Ostrom today!
Here at Ostrom, we work hard to ensure we’re contributing towards the energy transition every day. This is why, since we started in April 2021, we’ve only supplied our customers with 100% green energy—no compromises, just renewables.
The Merit Order describes the Order, of which energy source gets used first – from the cheapest (renewables) to the most expensive (gas). The cheapest source of energy production always feeds in first. However, the Merit Order does not represent a legal law, but an economic law, that attempts to describe how the electricity price on the electricity market comes about.