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What’s the Difference between a Fixed and Variable Rate Plan?

Knowing Your Energy Plan Options

Since you live in an area of the United States with energy choice, you have the power to select the energy provider that’s right for your home or business. You have the ability to choose your energy company based upon factors like rates, customer service, incentives, and more.

But before you can truly make the right decision, it’s crucial that you understand the difference between a fixed rate plan and a variable rate plan – because not all plans are created equal.

Fixed Rate Plan

A fixed rate plan is relatively simple. Essentially, you are signing up to pay a set rate for the amount of electricity and/or natural gas you use each billing cycle. Even better, that will remain the same for the entirety of your contract term.

Advantages of a Fixed Rate Plan

One of the greatest benefits of opting into a fixed rate plan is that you can more easily anticipate your electricity costs each month. When you know the price you pay each month, you can find ways to control your energy usage, allowing you to budget more effectively. You can also avoid the price spikes that come with a variable rate plan, especially during peak use seasons.

Disadvantages of a Fixed Rate Plan

A drawback of choosing a fixed rate plan is that you may end up paying more than the market value for energy if prices drop. For example, energy use typically decreases in spring and fall, which means wholesale prices are lower. The flip side is that you will likely pay less than the market rate with a fixed rate plan when prices rise during summer and winter.

Variable Rate Plan

Under a variable rate plan, the money you spend each month on energy depends on fluctuations in the market. This means the rate you are charged for the electricity and/or natural gas you use can change monthly, weekly, or even by the hour.
There are a few factors that influence the market value of electricity, including:
  • Weather conditions
  • Temperature
  • Supply
  • Demand
Naturally, most of those factors are seasonal, depending on the climate where you live.

Advantages of a Variable Rate Plan

If you live in a mild or moderate climate that doesn’t experience drastic seasonal temperature changes, a variable rate plan could help you save money, as you’d benefit from prices not swinging wildly. Variable rate plans also typically don’t require a long-term contract.

Disadvantages of a Variable Rate Plan

Because variable rate plans are subject to market changes, they make budgeting a little trickier. Peak use seasons like summer and winter can hike your rate up; leaving you with a hefty electricity bill you didn’t budget for. While great during non-peak seasons, opting for a variable rate plan can feel like a gamble.

At Spark Energy, we offer an assortment of residential and commercial fixed rate plans to fit your needs. From green energy plans that use renewable energy to carbon-neutral gas plans and a variety of contract term lengths, we’re proud to offer our customers reliable energy at competitive rates that won’t shock you when your bill comes.

Interested in learning more about what we have to offer? See our rates in your area.
7/10/2018 2:31:02 PM
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Tags: difference between a fixed rate plan and a variable rate, Fixed Rate Plan, Variable Rate Plan