Which is Better: Fixed Rates or Variable Energy Rates?
If you live in a deregulated energy market you’re in luck! You get to choose your energy plan from the retail energy provider of your choice. More options means you’re more likely to find an energy plan that’s right for your needs and budget, but finding that plan can involve answering a few important questions.
One of the first questions you’ll want to address is whether or not a fixed rate or variable rate energy plan is better. There are benefits and drawbacks to each option, so let’s go over the key differences that consumers have to consider.
When Fixed Energy Rates Are Better
Many people prefer fixed energy rates for one significant reason – the price per kilowatt-hour is locked in when you sign the energy plan contract. This makes energy costs much more predictable, which makes it easier to estimate your monthly budget since energy costs aren’t exactly the same each month. You’ll also be protected from rate hikes if the cost of energy increases.
You can’t know just how many kWhs of electricity you’ll use or how many cubic feet of natural gas, but you’ll know precisely what’s paid per kWh or cubic foot. And with a provider like Spark Energy you’ll get usage reports that give you a good idea of how much energy you’ll use in the month ahead.
Fixed energy rate plans are for consumers that aren’t gamblers. If you like to know exact figures and to plan in advance, this is the type of energy plan for you.
But the benefit of having a set rate could be a downside during certain market conditions. If the market rates were to go down you’d still be paying the higher price because you’re locked in to a certain rate for the duration of the contract. The fact you’ll be under contract is another downside to some consumers.
When Variable Energy Rates Are Better
Unlike fixed rates, variable energy rates aren’t locked in. The rate fluctuates up and down based on the market price for energy. That means the price you pay per kWh or cubic foot won’t be the same from one bill to the next, and a lot of factors affect natural gas prices and electricity rates.
Although it’s much less predictable, and therefore comes with more risk of the unknown, there are times when choosing a plan with a variable energy rate could make more sense. One of those instances is when energy prices are trending downward. Overall energy prices tend to trend upward, but that isn’t always the case. If the prices for energy drop you’ll benefit by paying a lower price than before. Just understand that the lower price may not be around for long.
A variable rate plan often provides more flexibility as well. Many of these energy plans are month-to-month. You may decide to go with a variable rate plan if energy prices aren’t stable and you want to wait several months to sign up for a fixed rate plan once prices even out. Or you may be in a temporary living situation and know you’ll be moving within the next six months.
If you need an energy plan for a short amount of time or prefer a month-to-month contract, then a variable rate is going to be the better option since there’s an early termination fee on many fixed rate energy plans. But the flip side of that is you won’t have any guarantees about the future of your energy plan.
Key Factors to Consider When Choosing Between Fixed Rate and Variable Rate Energy Plans
Let’s break all the information down into a quick bullet list of the major considerations for deciding when a fixed rate or variable rate energy plan is better:
- Current market average for price per kWh for electricity and cubic foot for natural gas.
- How long you need service.
- How energy prices have trended in the last six months.
- Current weather conditions – significantly impacts supply and demand.
- If there are any major things that could impact energy prices in the near future such as hurricane season or global conflict.
- How energy for the plan is generated – the energy source affects cost.
Spark Energy believes in giving consumers the power to choose. We offer a variety of fixed rate energy plans with different term lengths for residential and commercial customers. You can even find energy plans that are powered by renewable resources. Use your zip code to find and compare energy plans in your area!
