Understanding the Difference Between Fixed vs Variable Energy Rates
As you try to find ways to save on monthly utility bills, you may be wondering if a variable or fixed energy plan is best. Is there even a difference between fixed and variable energy costs? Fixed energy plans can offer various benefits, including a more predictable energy bill and protection from increasing energy rates. However, if energy costs drop, you may be spending more with a fixed-rate plan. As with most things in life, you should compare the pros and cons and risk vs. reward ratios before determining which plan is best for you. Keep reading to learn more about fixed vs. variable energy rates.
What does fixed-rate energy mean?
Under fixed-rate contracts, the amount you pay per kWh stays the same. Some may assume that this means your bill is the same every month, but this is not true. The rate per kWh is the same, but your usage may vary. As a result, your bill may vary, but it certainly will be easier to predict how much you will owe. If interest rates spike, you will be glad that you have a fixed-rate plan. However, if interest rates suddenly drop, you may wish you had a variable plan. It’s important to remember that energy prices can go up and down. The benefit of being locked into a fixed rate can help you plan better financially1.
What is a variable rate in energy?
Under variable rate energy contracts, the price you pay per kWh is determined by the market and other factors. The factors used to determine variable energy rates can vary depending on the supplier. With variable-rate energy plans, prices per kWh can change with little to no warning. As a result, your bill may fluctuate significantly depending on the current price per kWh and your usage. If you live in an area with sudden climate changes and hot summers or cold winters, you may be better off with a fixed-rate energy plan2.
What is the difference between a variable rate and a fixed rate for electricity?
The most significant difference between variable and fixed-rate plans is how pricing is determined. As we discussed previously, a fixed rate remains the same during the duration of your contract. When your contract ends, rates can change, but they cannot change during the contract. With a variable rate, the price per kWh can change depending on market conditions and other factors. Under both plans, your usage can vary, which can cause a change in your monthly bill. However, a fixed rate energy plan should always be more predictable in terms of monthly charges.
Is it better to have a fixed or variable energy rate?
While fixed energy plans may have a slightly higher per kWh rate, they can offer stability. In some cases, they may even end up being cheaper. On the other hand, if you like to take risks and have extra money each month, a variable rate energy plan may be better. To determine which type of energy plan is better for you, you should evaluate your usage and local market condition. If you live in an area with high energy costs, a fixed energy plan may benefit you. Each plan has its own unique set of benefits that you should consider before making a decision.
Is fixed rate or variable rate better for gas?
Similar to energy plans, gas plans can also be offered as fixed or variable. Fixed and variable gas plans are similar to fixed and variable energy plans. Variable gas plans may offer more flexibility for consumers but may result in a fluctuating monthly payment. For individuals dealing with a limited budget, fixed-rate energy or gas plans may be a better option. Managing monthly utility bills that fluctuate can affect other parts of your budget, especially if cash flow is tight.
Should I fix my natural gas rate?
You may decide to sign up for a fixed natural gas plan for only part of the year. If this is an option, you should consider using a fixed-rate plan when temperatures change the most and demand is the highest. This means fixed-rate gas plans can be the most beneficial during March through April and September through October. In some cases, you may be able to find short-term fixed natural gas contracts, but it’s not always an option. You should contact your local gas provider to determine what options are available. As we mentioned earlier, fixed-rate gas plans can make it easier to manage your budget if you are on a limited budget3.
What is a good rate per therm?
You may have noticed Btu’s or terms on your monthly gas bill. In most cases, natural gas companies bill customers using gas price per therm. Depending on the season and location, the price per therm can vary unless you have a fixed-rate plan. What is considered a good rate per therm usually depends on your location? You should be able to access local gas price averages to determine what you should be paying. The national average price in January 2020 was $9.52 per thousand cubic feet for natural gas4.
Is electricity a fixed cost?
How electricity is charged can depend on your location. For example, in California, prices adjust due to the time of use. Electricity is cheaper at night than it is during peak hours such as early morning or mid-afternoon. When fewer people are using electricity, it’s generally cheaper. Most electricity companies offer an option for a fixed-rate electricity plan. Similar to fixed-rate energy and gas plans, fixed-rate electricity plans may be easier to manage5. There are several reasons that electricity prices can fluctuate, including6:
- Time of year
- Market conditions
- Minimum usage charges
- Amount of renewable energy available
- Whether you are on a residential or commercial customer
- Individual plans
- Electricity production
- Fuel type
- Overhead for suppliers
Should I fix my energy prices?
Whether or not you should fix your energy prices depends on personal preference. Whether you use a fixed or variable energy plan, you can focus on reducing your usage. However, it may be less rewarding with a variable plan. For example, let’s say you spent most of your time at home uncomfortable and hot while constantly reminding yourself of how much money the discomfort could save you. What you didn’t realize is that prices had gone up, and even with a decrease in usage, your bill is the same or higher than it was the previous month. With a variable rate energy plan, you may have less control over your monthly bill. If you have a fixed-rate plan, you can increase or decrease your bill based on your usage. When you subscribe at Inspire, you can access clean energy for one flat monthly price.
How often do energy rates change?
In most cases, energy rates change depending on the time of year. However, several other factors can cause energy rates to change. In general, there is no set rule for when energy rates can and can’t change. While you may have some ideas about when prices are about to rise or fall, it can be hard to predict. In some cases, your energy company may provide some warning as peak seasons are approaching. During peak seasons, it’s important to conserve energy use when possible to avoid potential outages. If you want to avoid fluctuating energy rates, you will need to switch to a fixed-rate energy plan.
Are energy prices set to rise in 2022?
Between 2021 and 2022, it’s expected that we will see a 1.3% increase in energy prices. Over the last decade, energy prices have been on the rise. With energy prices on the rise, electricity prices are also on the rise. So what is causing the price increase? One factor that may be causing a surge in energy prices is the exposure to international markets. In 2021 we saw energy prices rise nearly 2.3% during a global pandemic7.
How long should you fix your energy prices?
It’s recommended that if you fix energy prices, you should do so for terms no longer than 12-months. While some companies may offer a one, two, or three year fixed term, be careful with longer terms as you may end up paying a premium. In addition, you may face termination fees in the event you need or want to cancel the agreement8. Whether you use a fixed or variable rate plan, you should read over the terms and conditions. It’s important to know exactly what you are signing up for. While you may not have the control to change the terms, being familiar with them can help you sign up for the appropriate plan. If you are considering a fixed energy plan, you should see if Inspire is available in your area. To do so, visit the Inspire website and enter your ZIP Code or address to check availability. Inspire is part of a clean energy movement and believes that energy should be 100% renewable, predictable, impactful, and designed for you. As with most fixed energy plans, your bill can fluctuate depending on usage. However, when you become an Inspire member, you can receive an energy bill that does not fluctuate. That’s right, one flat monthly price and no usage restrictions.
Switching to a provider that offers clean energy can save you money while reducing your carbon footprint. As an Inspire member, you can access clean energy for one flat price.
So how does it work?
To get started, visit the Inspire homepage and enter your address and/or ZIP Code. If Inspire’s services are available in your area, you can proceed with linking your utility. Discover the beginning of consistent and predictable monthly energy bills when you become an Inspire member.