What is the Difference Between a Variable and Fixed Electricity Plan?

If you live in a deregulated energy market, which means living in an area where consumers can choose their own electricity supplier, you should know about the two electricity plans provided by the suppliers in those regions. When you are out there shopping for a new power package, you’ll see that providers offer you two types of plans — variable and fixed. Knowing the differences will help you figure out which will be the best choice for your home’s electrical supply.

What Is a Fixed Rate Electricity Plan?

Such a plan requires you to sign a contract with the electricity provider for a specific period of time. The price of the unit will remain the same during the course of the contract. The length of the plan can be 3, 6, 12, 24, and 36 months.

Pros of the Plan

The main plus point of a fixed plan is that you don’t have to worry about the price of the electrical energy during the contract. It locks in your rate, so you don’t need to worry even if the price tend to fluctuate much in your area.

It’s good for people who have a fixed budget for their monthly expenditure. You can also choose such a plan for longer terms, such as for two to three years.

Cons of the Plan

However, the program is not free of disadvantages. It is just like a gamble where you can win or lose. If the rate goes down, you’ll have to pay a higher rate until the end of your term. You also have to pay penalty if you want to terminate the contract before the due date.

What Is Variable Rate Electricity Plan?

It is a month-to-month contract where you have to pay according to the electrical supply in the market and the prices of energy. You’ll pay less when the price is low and vice versa.

Pros of the Plan

It can be cheaper than a fixed rate plan considering that the prices of electrical energy fluctuates. You also have the freedom to terminate it at the end of a month and switch providers any time you want without requiring to pay the exit fee.

Cons of the Plan

The main disadvantage is your electricity bill may go up at a moment’s notice. So, it is not suitable for those who have a fixed budget for their monthly energy expense.

There’s also a third option known as indexed rate that shares some features of both the fixed and variable rate plans.

Which Plan will be the Right Choice?

Choosing the right electricity plan is a bit confusing given that both the schemes have their own unique advantages and disadvantages. Most people go with the fixed rate as it helps them to stay within a budget. However, if you don’t mind watching over the market rates and switching suppliers for the best deals, you should choose the variable rate.