Fixed vs Variable Energy Rates: Which Plan Suits You Best?

Fixed vs Variable Energy Rates: Which Plan Suits You Best?

Choosing the right energy plan for your needs by understanding the options available, such as variable-rate and fixed-rate plans offered by your electricity provider.

What are fixed vs variable energy plans and how do they work? Which plan should you choose to save on your electricity bill? Let’s answer these questions and figure out which energy plan suits you best!

What are Fixed Energy Rates?

Fixed energy rates, aka fixed-rate energy plans, are agreements where customers commit to a set rate for a specific period, regardless of changes in supply and demand or inflation. The price is determined and stipulated in the contract with the energy supplier and remains constant despite market fluctuations.

Therefore, customers will know exactly how much they must pay for energy for the term. In winter or summer, when gas and electricity rates tend to increase, the energy rate you pay remains, which is also helpful.

What are Fixed Energy Rates?

For example, if you sign up for a fixed-rate electricity plan for 12 months at 6 pence per kWh. If you use 1500kWh of electricity per month, your estimated monthly bill would be £90 per month (6 pence times 1500kWh). Additionally, you might use more or less electricity in some months than others, and then the total monthly bill will change depending on the amount of electricity you use, while the rate per kWh is fixed and unchanged throughout your contract term, normally in 12 months.

What are Variable Energy Rates?

Variable energy rates, aka variable-rate energy plans, are also called month-to-month plans. With such short contract term lengths, this energy pricing structure provides consumers with more flexibility and adaptability.

Instead of paying a consistent energy rate over a specific period like fixed-rate plans, if you choose a variable plan, your energy rate is subject to fluctuations in the energy market. In other words, variable rates can change from month to month based on market conditions and supply and demand. Therefore, the price you pay per kilowatt-hour for electricity for the retail energy supplier will vary frequently.

What are Variable Energy Rates?

When the electricity cost in the market changes, your rate could, too. This plan is beneficial when market prices decrease, but when there are high temperatures or high demand, a variable-rate plan could be expensive.

Variable-rate energy plans can also be more complicated than fixed plans. That’s why some consumers decide to start at a lower fixed rate and then jump to a higher variable rate later. It is recommended to identify the details carefully before committing to any energy plan.

The Differences Between Variable vs Fixed Rate Energy

You might want to determine whether the supplier provides fixed or variable rates and learn about each’s benefits and drawbacks. The chart below provides a detailed comparison between fixed and variable energy rates.

AspectFixed RatesVariable Rates
Price StabilityIt is an all-inclusive price that will remain the same for the term of the contract, which gives you the certainty that your price will not change.The all-inclusive price can change by the day or month according to the terms and conditions in the disclosure statement of the supplier, and based on market conditions.
Market Price ImpactEven if market prices decrease, you must wait for the contract to expire to get a lower rate.Market prices increase or decrease will make your rate change accordingly.
Overall CostA fixed-rate might lead to paying more money overall.You may save some money if you adjust your energy usage based on energy market prices.
BudgetingWhen you budget your energy costs, fixed rates give stability.It is harder to estimate your monthly energy bill and budget your spending.
Cancellation FeesThere are cancellation fees, so be sure to ask your supplier and read the contract carefully.There is often no early cancellation fee, but you still need to check with your energy supplier for sure.
Weather ImpactDespite extreme weather temperatures, the fixed rate will not change. Your bill may get higher just because of higher energy usage due to extreme temperatures.Extreme cold or hot temperatures will increase wholesale energy prices, which makes the price per energy unit higher. In addition, higher energy usage can further increase your bill.
Benefits• A fixed per-kilowatt-hour rate does not go up even if market prices get higher than your rate.
• Consumers can budget around their electricity costs.
• It brings a more consistent and predictable monthly bill.
• Consumers can save on electricity bills when market prices are low.
• It provides greater flexibility to switch energy providers.
Disadvantages• A per-kilowatt-hour rate remains the same even if market prices drop below your rate.
• There might be early cancellation fees if you decide to change plans before the end of your contract.
• Rates increase when market prices are driven up.
• You must pay more per kilowatt-hour when the price of natural gas and other fuels increases.
• Unexpected spikes in your monthly bill make it hard to predict and budget your monthly spending.

How to Know What Plan Suits You Best?

Wondering which energy fixed vs variable plan you should go for? Below are a couple of things you need to consider before making the decision:

  • Do you use electricity or gas to power your house, or use both of them? Which type of energy will help you narrow down the appropriate energy plan.
  • Which energy patterns do you have? Energy prices might get higher during peak hours when the most energy is used. Aligning with energy peak hours, you are more likely to pay more at the end of the month.
  • Do an energy audit. The audits will help you identify if you are wasting energy in your house or business buildings due to things like air leaks or lack of insulation. Any issues might require repairs and renovations in your home, which will impact your budget. If you need more stability, you will choose a more suitable plan accordingly.
  • Research various energy providers in your area. For each provider, it is recommended to check their reputations during their operation time, refer to customer reviews, and assess their available rate plans that are most suitable for your energy needs.
How to Know What Plan Suits You Best?

Making Sense of Your Options at Light Up Energy

Understanding the meaning of fixed vs variable energy rates will give you a better idea of which plan suits your needs best. Each business has its own energy needs, so the decision will depend on how you use energy, how you budget, and how much risk you can take.

Fixed-energy plans are more stable and predictable solutions, but they might not be the best deal when energy prices decrease. On the other hand, variable energy plans are more flexible despite their price volatility and uncertainty. However, no matter which energy rate you go for, make sure you read the terms and conditions of your contract before signing.

If you still have further concerns about energy variable vs fixed plans, don’t hesitate to contact Light Up Energy. Our team is committed to providing energy plans custom to the needs of your business. Contact us today to see how our energy solutions can serve you!

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Light Up Energy
Light Up Energy
Light Up Energy, founded by hospitality experts with 20+ years of experience, helps businesses save money via innovative energy management strategies.

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