Exploring your energy provider options is a smart move in a deregulated energy market. You can easily save money on your electricity bill by finding the best energy option for your home. However, you’ll quickly notice how different each plan is when you start looking into each option. It’s important to understand the various aspects of each service as well as how the energy pricing plan works.
By fully understanding the pros and cons of electricity plans, you will be able to select the most affordable choice for your family. Two common energy plans you’ll find in your area are fixed rate electricity plans and variable rate electricity plans. Below are the differences between the two as well as how they can help enjoy cheaper electricity bills.
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What Is a Variable-Rate Electricity Plan?
A variable rate plan is dependent on the energy market and a few other factors determined by the energy provider. With this type of plan, your energy rate can change on a monthly or even hourly basis depending on the plan you select. A number of factors impact the market price of electricity including weather, temperature, supply, and energy demand and useage. If you live in an area with extreme temperature fluctuations, this will have a big impact on your variable rate electricity plan.
Variable Electricity Rates: The Pros
The variable rate energy plan has two main benefits that people like. The first is that when market prices fall, you will reap the rewards of your variable energy plan by paying the lowest available rate. The second main benefit of variable rate energy is that most of these plans do not have any associated cancellation fees like their fixed rate counterparts. If you need a lot of flexibility with your energy plan, then a variable option is one you should consider as you can cancel at any time.
Variable-Rate Energy Plans: The Cons
As already stated, if the market price of electricity falls, you’ll benefit from this low cost with a variable rate plan. That being said, you’ll also be impacted by market price surges. If the overall price of energy increases dramatically, you’ll be stuck paying that higher rate until the market price goes back down. You can see some big spikes in your monthly bill when this happens. For people who work with a tight budget, a variable rate energy plan can be a difficult expense to predict.
What Is a Fixed Rate Electricity Plan?
A fixed-rate electricity plan means that you and your provider agree on a specified billing amount for an extended period of time. This could mean signing up for a three-month contract or a contract for a full year. Each month, your energy bill will stay close to the same price as you’ve already locked in your rate for the electricity contract period. If you decided to go with a fixed-rate electricity plan, make sure to carefully review the contract for any additional fees associated with the plan.
Fixed Energy Plans: The Pros
Unlike the variable rate energy plan, a fixed rate energy plan won’t fluctuate with the market energy price. The fixed rate plan has you paying per kilowatt-hour throughout the contract period. Your bill will mainly depend on how much energy you use in the month as well as other associated fees from the utility company. This means if the market rate of the energy prices goes up, you won’t have to pay any extra. A fixed rate plan is great for budgeting because your bill will be close to the same price each month.
Fixed Energy Plans: The Cons
The main downside of a fixed rate energy plan is that if market prices for energy drop, you’ll be paying the same rate listed in your contract. Fixed rate energy plans also tend to have early cancellation fees, so if you need to change your plan before your contract ends, you’ll be paying an extra amount.
What Is the Best Electricity Plan for You?
Each energy plan comes with differing benefits and drawbacks. To find the right plan, you have to examine your life and your energy usage:
- Moving in the next couple of months? A plan with variable electricity rates could be a better option.
- Prefer less risk or staying where you’re at for a while? A fixed energy plan is like the option for you.
Being well-educated on the differences between energy plans will help you make the best choice when selecting your energy provider.
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