Renewal traps in your electricity contract: how to avoid getting stuck
Automatic renewal, short notice windows, exit fee clauses and default contracts can lock you into the wrong price. How to find the traps and keep track of the dates.
Silence counts as a yes
Most business electricity contracts renew automatically if nobody terminates them in time. That sounds harmless, but the renewal is rarely on the same terms as when the contract was signed. The price can be reset, the lock-in period can be as long as the original and the contract type can be switched to the supplier's standard product. Because nothing happens on the invoice on the day the contract renews, it is often only noticed several months later.
Four traps to know about
1. Automatic renewal
Read exactly what the contract says about renewal. There are big differences between:
- Renewal on the same terms. A fixed price signed when the market was high continues to apply, even if prices have fallen.
- Renewal at the current price list. The supplier sets a new price or mark-up on the day the contract renews, without you having compared it with anyone else.
- Transfer to a standard contract. When a fixed contract expires, you are moved to a variable contract with a higher mark-up and more fees.
- Renewal for the same lock-in period. A three-year contract is renewed for three new years, not one.
2. The notice window
The contract can usually only be terminated during a certain period before it expires, for example no later than three or six months beforehand. The date that matters is therefore not the end date but the last day for giving notice. Also check how notice must be given: in writing, to which address and by whom. Notice sent through the wrong channel or by the wrong person can be rejected.
3. Exit fee clauses
A fixed price or a portfolio contract is based on the supplier having bought electricity for you in advance. If you leave the contract early, move or close a site, the supplier often charges an exit fee. It is usually calculated as the difference between the contract price and the market price for the remaining volume. If prices have fallen since you signed, the exit fee will be high.
Two things to check:
- Is the clause one-sided? If the market price has instead risen, do you get the difference back or does the supplier keep it?
- Is there a volume band? Many fixed-price contracts only allow a certain deviation from the contracted volume. If you use more or less, the excess or shortfall may be priced separately.
4. Default (assigned) contract
A site without an electricity supply contract still receives electricity. The network operator then assigns an electricity supplier, and the site ends up on a default (assigned) contract (anvisat avtal). This happens mainly when moving, setting up a new business or when a company takes over a business, but also if the electricity supplier goes bankrupt. According to an evaluation by the Swedish Energy Markets Inspectorate (Energimarknadsinspektionen), prices in default contracts have generally been higher than the market reference price.
The good news is that under the Swedish Electricity Act a default contract may have a notice period of no more than 14 days. Anyone who discovers the problem can therefore leave the contract quickly. The hard part is discovering it, because the invoice comes from a company you may never have been in contact with.
Worked example: what a missed window costs
Worked example: A business using 300,000 kWh a year has a fixed price of 95 öre/kWh that renews automatically on the same terms for twelve months. At the same time, a new contract could have been signed for 70 öre/kWh.
- Difference: 95 − 70 = 25 öre/kWh
- Extra cost: 300,000 kWh × 0.25 kr = 75,000 kr for the year
The prices in the example are made up to show the calculation. Do the same calculation with your own contract price, your volume and a current quote.
Red flags in the contract terms
- "The contract renews automatically for a contract period of the same length"
- "On renewal, the supplier's price in force at any given time applies"
- "Notice must be given in writing no later than six months before the end of the contract period"
- "On early termination, the difference between the contract price and the market price is charged"
- "Deviation from the contracted volume is priced according to the supplier's price list"
How to keep track
- Make a contract list. One row per site with site ID, supplier, contract type, end date, last day for giving notice and what happens on renewal.
- Put the last day for giving notice in the calendar, with a reminder about nine months before the end date. That gives time to request quotes and compare without time pressure.
- Give notice as a precaution if you are unsure. You can sign a new contract with the same supplier if that turns out to be best, but then you are negotiating instead of being renewed.
- Ask for written confirmation of the notice and of any new terms.
- Check at every change. Moving, a change of ownership, a new site or a closure are times when sites end up on the wrong contract or exit fees are triggered.
- Read the first invoice after a change. If it comes from an unfamiliar electricity company or with a new price, act immediately.
Tip: When signing, ask the supplier what happens if you move, close a site or use more than contracted. The answer says a lot about how the contract is written.
How the traps look in different industries
The renewal traps are the same for everyone, but when they strike depends on how the business changes. Choose your industry for a worked example and the situation we see most often.
- Energy advice for restaurants
Example: A restaurant using 150,000 kWh a year signed a fixed price of 110 öre/kWh when prices were high. The contract renews automatically at the same price for twelve months because nobody had time to terminate it during the season. If a new contract could have been obtained for 75 öre, the renewal costs 52,500 kr. Note the last day for giving notice when the contract is signed, not when it expires. Read more: Automatic renewal of a restaurant's electricity contract.
- Energy advice for hotels
Example: When a hotel changes operator, the electricity contract is often in the name of the previous operator's company and ends when that company leaves. If nobody signs a new contract in time, the site ends up on a default (assigned) contract (anvisat avtal, the supplier assigned by the network operator when no contract is in place). At 700,000 kWh a year, three months equals roughly 175,000 kWh, and a price 25 öre higher comes to 43,750 kr. Put the electricity contract on the handover checklist.
- Energy advice for industrial companies
Example: An industrial company has a fixed price for 3,000,000 kWh a year and closes a production line with 18 months left on the contract. The part of the volume that disappears, 600,000 kWh a year or 900,000 kWh in total, is settled against the market price. If the market is 25 öre below the contract price, the exit fee is 225,000 kr. Read the exit fee clause before the decision to close is taken. Read more: Termination traps in industrial energy contracts.
- Energy advice for property owners
Example: A property company buying a property can take over the seller's electricity contract by assignment, together with the renewal terms that come with it. If the contract for the 300,000 kWh of landlord electricity renews for a year at a price 15 öre above the market, it costs 45,000 kr. Ask for the seller's electricity contracts as part of the acquisition and add the end dates to your contract list. Read more: Renewing the portfolio's electricity contracts.
- Energy advice for housing cooperatives
Example: A housing cooperative (BRF) changes its board at the annual general meeting and the person who signed the electricity contract moves away. The notice date was in a folder nobody has opened. The contract renews for a year, and with 90,000 kWh and a price 20 öre above a new offer, it costs 18,000 kr. Add the contract's end date and last day for giving notice to the cooperative's annual calendar so that the information survives the change of board. Read more: Electricity contracts for housing cooperatives.
- Energy advice for shops & retail
Example: A shop in a shopping centre pays for electricity through the landlord under an electricity clause in the lease. It cannot be terminated separately, and when the lease renews automatically for three years, the electricity clause comes with it. With 120,000 kWh and a price 10 öre above what the shop could have got on its own, that is 12,000 kr a year, 36,000 kr over the period. Raise the electricity clause when the lease is to be renegotiated.
- Energy advice for grocery stores
Example: A grocery store using 500,000 kWh a year has a contract that on renewal switches to the supplier's price in force at any given time. The mark-up is then set by the supplier without competition. A mark-up 8 öre higher equals 40,000 kr a year. With refrigeration and freezers running around the clock, the volume is easy for other suppliers to price, so request quotes well before the renewal.
- Energy advice for agriculture & farming
Example: When a farm passes to the next generation, it is moved from the parents' sole proprietorship to a new company. The electricity contracts for the house, barn and dryer remain with the old business and can renew or end without the new owner noticing. If the contract for 250,000 kWh renews for a year at a price 15 öre above the market, it costs 37,500 kr. Go through all site IDs when the change of ownership takes place.
- Energy advice for offices & serviced offices
Example: An office using 200,000 kWh a year has a three-year contract that renews for a new period of the same length. A missed notice therefore locks the contract in for another three years. With a price 12 öre above the market, that is 24,000 kr a year and 72,000 kr for the period. Look for the wording "renews for a contract period of the same length" and negotiate a twelve-month renewal instead.
- Energy advice for logistics companies
Example: A logistics company has a fixed price for 600,000 kWh a year with a volume band of plus 20 per cent. As forklifts and lorries are electrified, consumption rises to 800,000 kWh. The band covers up to 720,000 kWh, and the remaining 80,000 kWh are priced according to the supplier's price list. If that price is 15 öre above the contract price, it costs 12,000 kr. Notify the supplier of planned volume increases before they happen.
- Energy advice for property managers
Example: A property manager has signed electricity contracts in its own name on behalf of a client. When the management assignment ends, it is unclear who should terminate or take over the contracts. If the properties' 1,000,000 kWh renew for a year at a price 10 öre above the market, it costs the owner 100,000 kr. Set out in the management agreement what happens to the electricity contracts when the assignment ends.
- Energy advice for health centres
Example: A health centre using 150,000 kWh a year receives the supplier's renewal reminder at an email address that belonged to a former practice manager. Nobody reads it, and the contract renews for a year at a price 15 öre above a new offer. That costs 22,500 kr. Make sure the contract has a shared role-based address as its contact rather than an individual.
- Energy advice for hospitals
Example: A hospital's electricity contract is often a procured framework agreement with an option to extend. If a new procurement is not completed when the contract expires, the volume may end up on a price that has not been procured. At 15,000,000 kWh a year, three months equals 3,750,000 kWh, and a price 5 öre higher comes to 187,500 kr. Start the procurement early enough that the option does not have to be used out of necessity.
- Energy advice for dental clinics
Example: A dental clinic accepted an offer over the phone and got a contract that renews automatically every year. The written contract never arrived, so nobody knows when it can be terminated. With 40,000 kWh and a price 20 öre above the market, it costs 8,000 kr a year. Ask the supplier for the contract terms in writing and check the last day for giving notice.
- Energy advice for care homes for the elderly
Example: A private care home is run under contract for the municipality but has signed a three-year fixed electricity contract. If the municipality chooses another provider after two years, one year of the electricity contract remains, and for 350,000 kWh with the market price 20 öre below the contract price, the exit fee is 70,000 kr. Let the length of the electricity contract follow the service contract.
- Energy advice for haulage companies
Example: A haulage company has had the electricity contract for depot charging bundled with a charging solution and a five-year lock-in period. The contract cannot be terminated separately without buying out the entire package. With 150,000 kWh of charging a year and a price 10 öre above the market, it costs 15,000 kr a year, 75,000 kr over the lock-in period. Ask for electricity and charging equipment to be priced and contracted separately.
- Energy advice for car dealerships
Example: A car dealer has its electricity contract through a framework agreement within a brand network or chain. If the dealer leaves the network, the contract may end or switch to the supplier's standard price. With 300,000 kWh and a price 15 öre higher, that is 45,000 kr a year. Check the framework agreement's exit terms before the dealership agreement is changed.
- Energy advice for car repair shops
Example: A car repair workshop using 90,000 kWh a year has a fixed price that is expiring. The contract does not renew at the same price but switches to the supplier's standard variable contract, with a mark-up 8 öre higher and a monthly fee of 59 kr. That is 7,200 kr plus 708 kr, a total of 7,908 kr a year. Check what the contract switches to when the fixed period ends.
- Energy advice for bakeries
Example: A bakery using 300,000 kWh a year has an hourly-price contract and runs its ovens at night, roughly 180,000 kWh. On renewal, the supplier moves the bakery to a monthly-price contract because the old product has been discontinued. If the night hours are on average 10 öre below the monthly average, the bakery misses out on 18,000 kr a year. Check that the contract type is the same after renewal.
- Energy advice for gyms & fitness centres
Example: A gym chain closes one of its sites, but the electricity contract for it has a fixed price with nine months remaining. The supplier charges an exit fee for the remaining volume, roughly 112,500 kWh if the site used 150,000 kWh a year. With the market price 15 öre below the contract price, that comes to 16,875 kr. When signing, ask whether the contract allows sites to be added and removed.
- Energy advice for spas & swimming centres
Example: A swimming centre using 1,800,000 kWh a year wants to leave its portfolio contract. Half of next year's volume, 900,000 kWh, is already price-hedged, and those hedges must either be taken over by a new supplier or settled. If the market is 15 öre below the hedged price, settlement costs 135,000 kr. Plan the switch so that it coincides with the hedges expiring.
- Energy advice for camping & campsites
Example: A campsite has an electricity contract that expires on 30 September with the last day for giving notice on 30 June, in the middle of peak season. Nobody gets round to it, and the contract for 200,000 kWh renews for a year at a price 15 öre above the market. That costs 30,000 kr. Make sure the last day for giving notice falls in the low season when the contract is re-signed.
- Energy advice for warehouses
Example: A warehouse using 500,000 kWh a year has a fixed price that on renewal is reset to the supplier's fixed price on the day the contract expires. The price is therefore set at a single point in time, without competition. If it ends up 15 öre above what another supplier would have offered, it costs 75,000 kr a year. Request quotes before the last day for giving notice instead of letting the price be set automatically.
- Energy advice for schools & preschools
Example: An independent school group with six units has electricity contracts signed when each school opened, with different end dates. One unit using 80,000 kWh is missed and renews for a year at a price 15 öre above the market, which costs 12,000 kr. Coordinate the contracts so that all units have the same end date, or combine them in one contract.
- Energy advice for server halls & data centres
Example: For a data centre using 20,000,000 kWh a year, an automatic renewal means the entire volume is priced at a single point in time, the opposite of a strategy of hedging in several tranches. If the price on that day is 5 öre too high, it costs 1,000,000 kr for the year. Start renegotiating a year or more before the end date so that the hedging can be spread out.
- Energy advice for refrigeration plants
Example: A cold storage facility has a fixed price for 1,500,000 kWh a year with a volume band of minus 10 per cent. After replacing its compressors, consumption falls to 1,200,000 kWh. The band covers down to 1,350,000 kWh, and the 150,000 kWh not used are settled. If the market is 20 öre below the contract price, it costs 30,000 kr. Inform the supplier of planned efficiency improvements and include the settlement in your calculations.
- Energy advice for churches & parishes
Example: When parishes merge, electricity contracts with different end dates and suppliers come with them. A chapel using 30,000 kWh whose contract has ended can end up on a default (assigned) contract without anyone noticing. With a price 25 öre higher, it costs 7,500 kr a year. Make a contract list of all sites as part of the merger. Read more: Electricity contracts for churches and parishes.