Understanding fixed rate energy

As electricity prices continue to rise, it's wise to look for better ways to manage your costs. While many Australian energy providers advertise enticing discounts, these discounts only truly benefit you if the initial price is competitive.

It's tempting to opt for deals offering 10% or more off your bills, but if the base rate is high, you might not actually save much. Energy plans can be complex and confusing, making it challenging for consumers to compare providers and prices.

However, fixed-rate (or fixed-price) energy plans offer a solution. These plans provide more transparency and predictability, simplifying the process of comparing costs and ensuring more certainty over your bills.

What are fixed rate energy plans?

Fixed-rate energy plans are agreements that establish a set price for electricity or gas usage and supply throughout the contract term, typically one or two years.

Energy companies often adjust their prices annually, but fixed-rate products enable customers to avoid these price fluctuations by locking in its rate.

With a fixed-rate plan, the cost per kilowatt-hour for electricity or gas remains constant for the duration of the term. In many cases, the daily supply charges, which cover the cost of being connected to the energy network, are also fixed.

In contrast to variable rate plans, which are subject to price changes, a fixed-rate plan offers stability and predictable pricing for a duration of one to two years. This can help you budget more effectively.

Additionally, the supply charge is typically locked in, ensuring it remains unchanged throughout the plan's duration.

Pros and cons of fixed rate plans

There are plenty of benefits to choosing fixed rate energy plans over variable rate plans, but there are also drawbacks to consider. Let’s take a look at these below:

Pros:

Knowing your bills

With a fixed-rate plan, your monthly energy bills remain consistent due to a set per-kilowatt-hour rate. This stability allows for effective financial planning, giving you confidence in your budget.

No worries with market fluctuations

Fixed-rate plans shield you from sudden price spikes or fluctuations in the energy market. Your rate remains constant, providing peace of mind that’s needed in a cost of living crisis.

Easier budgeting

Fixed rate energy is ideal for those who value financial stability and long-term planning. With fixed rates, your energy costs remain steady throughout the contract period, helping you make informed financial decisions.

Cons:

Missed savings

Fixed-rate plans prevent you from benefiting from any price drops that may occur during your contract, potentially causing you to miss out on savings.

Exit fees

Exiting a fixed-rate plan early could result in additional fees, although exit fees are becoming less common.

Default offer switch

Once your fixed-rate contract ends, your provider may switch you to its default plan, which could be more expensive than your current offer.

How do fixed rate plans compare to fixed cost plans?

Fixed rate energy plans offer customers a set price for their power, providing price certainty but not cost certainty.

Since households use varying amounts of electricity and gas each month, the actual amount due will fluctuate from one billing period to the next.

In contrast, fixed cost energy plans establish a specific price to be paid every billing period, regardless of actual usage. This means you can choose to lock in a price or a cost, depending on your preference.

Making the right decision

Now that you've gained insight into fixed rate energy plans, it's time to make a decision that aligns with your needs. Before you decide whether to go for variable rate plans, consider:

• Assessing your energy consumption. Before choosing a plan, evaluate your energy consumption habits. This will help you make an informed decision on whether you go for a fixed rate energy plan or not.
• Understanding your energy usage. Understanding how and when you use energy is crucial for selecting the right electricity rate plan. By analysing your usage patterns, you can align your decision with your habits and budget, ensuring your monthly expenses suit your lifestyle.
• Your comfort level with bill changes. If you value financial predictability and stable monthly expenses, a fixed-rate plan is a suitable choice. It guarantees consistent electricity costs, enabling you to manage your finances confidently. This approach helps you steer clear of unexpected shocks and maintain a firm grip on your finances.
• Your location. Your optimal energy plan can be greatly influenced by your geographical location and the seasonal changes. Understanding the energy dynamics in your region and how seasonal variations affect your energy consumption is crucial for making a knowledgeable decision.

Is it possible to change from a variable rate to a fixed rate energy plan?

Yes, you can switch from a variable rate energy plan to a fixed rate plan at any time, provided there is a fixed rate plan available in your area.

One of the benefits of a variable rate plan is its lack of set contracts, allowing you to switch providers whenever you choose.

However, committing to a fixed rate plan may come with early exit fees if you decide to change plans again before the contract period ends.

Although these fees are less common now, they can be substantial, as their purpose is to discourage customers from breaking fixed contracts.

Is a fixed rate energy plan right for you?

Deciding if a fixed-rate energy plan is suitable for you hinges on your unique situation. While some individuals appreciate the simplicity of setting and forgetting their rates with a fixed plan, others may hesitate to commit to locked-in rates, particularly if prices appear to be declining.

Regardless, when seeking the best deal for your electricity or gas, it's wise to compare both types of offers to determine which is more cost-effective or convenient for you.

Calling the experts at Compare Energy is the best next step that you can take when it comes to your energy needs. Talk to us about available fixed rate energy plans in your area.