A fixed electricity plan allows the consumers to lock their rates for a specific time. During this period, the rate per unit of energy used is the same regardless of the wholesale electricity prices or market rates. This provides security and peace of mind since the consumer knows what bill to expect — having the advantage of maintaining a low rate when the wholesale prices go higher. However, the user may pay higher rates when wholesale prices come down.
Are there savings in fixed rate electricity plans?
Whether you are going to save in the long term or not is usually a gamble when on a fixed electricity plan. In areas where rates are likely to go down, it is better to sign up for shorter contracts. This means that you may get a lower rate in the next contract period.
If you opt to go for longer periods, say about two years, you will not benefit from any reductions in electricity rates that occur in between. If you are on a longer fixed electricity plan term and want to switch before it is over, you will have to pay the exit or termination fee. This amount varies from one provider to another. It is therefore important to consider this fee and determine if there will be any saving after moving to a cheaper rate, or whether the fees will outweigh them.
Advantages and disadvantages of fixed electricity plan
The fixed electricity plans have mixed benefits in that the customers do not pay more if the market electricity prices go high, but if the rates go down, they have to continue paying at the higher rates.
- Locking the rate for a specific period ensures you pay the same price per unit regardless of the fluctuations in the wholesale market
- The fixed electricity rate is usually simple and easy to understand, hence much more straightforward when comparing between several providers.
- Consumers continue paying higher rates when the wholesale prices are lower and variable rate consumers are paying theirs at lower rates.
- The fixed electricity plans have cancellation or exit fees, meaning that it will cost you additional money if you decide to switch to a better offer before the contract period is over.
The best time for a fixed electricity plan
The energy providers often change the rates according to the environmental and market factors. It might be difficult to know the best time to sign up for a fixed electricity plan that will help in saving money. However, a customer can keep track of the rates by doing a comparison every six to nine months.
The cost of generating and distributing electricity keeps changing on a daily basis due to a variety of factors that include weather conditions, demand, fuel, exchange rate and others. There are times when the electricity wholesale prices are higher and times lower. For a customer looking to save energy costs, the best time to enter into the fixed electricity rate plan is when the prices are low.
During the months when the demand is high, such as when most customers are using the cooling or heating systems, the electricity prices are usually high. This is because the generating companies have to increase capacity to meet the additional energy needs.
This might not be the best time to sign up for the fixed rate. But if a customer enters the contract prior to this period and when the rates are relatively lower, they will enjoy low prices during the high demand season. Customers need to understand the market fluctuations to know the best time to lock the rates and cushion themselves against price hikes.
What happens when the contract ends?
The end of a contract provides customers with an opportunity to move to different providers or plans without paying the exit fee.
The electricity company is required by law to give a notice of between 42 to 49 days before the contract expires. During this time, you have the option to renew the contract or move to a new plan without paying the cancellation fee. If you don’t, the company will automatically transfer you to the standard plan which is usually the most expensive.
Fixed rate options after moving to a different home
A customer moving to different homes can still continue with the fixed electricity plans. The majority of energy providers have the options to transfer the contract to new homes as long as they are within their service area.
However, even the area has different rates, the customer will have to meet the difference and still enjoy comparable savings. It is also important to confirm with the provider that they will transfer the contract to the new location.
Fixed electricity rates enable the consumers to lock their rates for the period of the contract. During this time, the variations in the wholesale energy prices do not affect the customer’s rate.
One of the main advantages of a fixed electricity plan is that an increase does not affect your bill. You continue paying the fixed rate per unit throughout the contract period. However, your total bill may vary depending on the number of units you consume. If you use more, the bill becomes higher and vice versa.