Are longer-term energy contracts worth it?

January 8, 2018
Read time: 3 minutes

In deregulated states, standard competitive energy suppliers offer the opportunity to lock in your energy supply rate for 12 months, but some companies, like IGS Energy, may offer terms up to 5 years. Here’s why:

Longer-term energy contracts exist because they may protect from future market fluctuation

Essentially, by locking in a longer-term energy contract you are agreeing to pay a price now for the energy that you will consume later.

So, when market prices are at lower levels, it could be a great time to lock in a longer-term rate. Locking in may help you avoid a potential shift in the natural gas and electricity pricing, for the duration of your contract, in the event that energy prices rise.

When you are locked in, your supplier assumes the financial risk of your electric or natural gas rate.

Prices are always fluctuating and there are many variables that can impact the price of natural gas and electricity, such as:

  • Weather and seasonal shifts (Remember the Polar Vortex of 2014?)
  • Supply and demand
  • Standard inflation
  • Political matters

All of these factors can significantly influence future energy prices; and while energy suppliers take all of these factors into account, there is no crystal ball to energy pricing. So, any supplier does take on a financial risk when purchasing energy, into the future, for their customers.

So, what does that mean?

Well, if you are shopping for electricity or natural gas contracts, you’re most likely going to find one common theme: longer-term contracts (duration: 18+ months) will be more expensive per unit of consumption than shorter-term contracts (6-12 months).

Why?

For the energy supplier, the further out the contract goes, the more risk we have on the product. This translates to a slightly higher rate offer. But the further out the contract goes, the longer your duration of protection is from unexpected price fluctuation on your bill.

Another reason that you might choose a longer term contract:

The perks of locking in for the long-run don’t stop at price protection.

One of the great things about locking in your energy rate is that each time your contract expires, you have to actively sign up for another one, either with your current or a different supplier. If you don’t, then you risk rolling onto a variable rate and riding the energy market prices’ ups and downs.

There’s a lot to be said for simply ‘setting it and forgetting it.’ Then you only have to shop and sign a contract once every three or five years, versus on an annual basis. And you won’t have to worry about your contract’s upcoming expiration date.

Are longer-term energy contracts worth it?

It depends on what you’re looking for. If you are an everyday consumer who is looking to protect your budget from energy market ups and downs – but don’t want to spend a lot of time watching the market – then a longer-term rate might be for you.

No matter what you are looking for, IGS Energy offers a variety of different contracts and rate structures for your home or business energy supply. Check rates in your area to find one that might be right for you.

Learn more about energy options in your area