Introduction – Factors Affecting Electricity Rates
The price of electricity is determined by the amount of demand on the energy grid. When demand is low, energy rates are low. When demand is high, energy rates are high. Energy rates are also affected by the price of natural gas, the price of coal, the price of oil, and the price of nuclear fuel. That’s because each of these feed into the electrical grid. The precise proportion depends on your country or state or even city. This is because the electricity is delivered via different methods that affects its availability to your home. We consider below factors for determining whether its better for you to go with variable vs fixed rate electricity.
Variable Rate Electricity
Variable rate electricity rates are those that change frequently, typically on an hourly basis. They are set by the electricity provider based on the current price of electricity in the wholesale market.
The electricity provider will pass along any changes in the price of electricity to you, either through a higher monthly bill or a lower rate per kilowatt-hour (kWh).
Fixed Rate Electricity
Fixed-rate plans offer a rate that is locked in for a set period of time, usually 12 months or more.
This means that your rate will not change during the term of your contract, no matter what happens to the price of electricity in the market. The electricity provider guarantees that the rate will not change during that time period.
States With Deregulated Electricity Markets
Being able to choose variable vs fixed rates is associated with whether your electricity provider is operating in a deregulated, free market or not. Below is a list of states with deregulated energy markets. There are advantages to living in a state with a deregulated electricity market.
- You have the power to choose a electricity provider.
- You have the power to choose variable vs fixed electricity rates.
- You have the power to choose the type of electricity plan that is best for you.
- You have the power to choose the renewable energy options that are available to you.
- You have the power to choose the energy efficiency options that are available to you.
There are also some disadvantages to living in a state with a deregulated electricity market.
- You may have to pay a higher price for electricity.
- You may have to pay a higher price for renewable energy.
- You may have to pay a higher price for energy efficiency.
- You may have to pay a higher price for electricity during peak demand periods.
A list of states that have deregulated markets and therefore greater consumer choice is given below.
- Texas
- California
- Connecticut
- District of Columbia
- Delaware
- Illinois
- Maine
- Maryland
- Massachusetts
- Michigan
- Montana
- New Hampshire
- New Jersey
- New York
- Ohio
- Pennsylvania
- Rhode Island
Comparing Variable Vs Fixed Rate Electricity Rates
There are two main types of electricity plans: fixed-rate and variable-rate. Fixed-rate plans offer a rate that is locked in for a set period of time, usually 12 months or more.
This means that your rate will not change during the term of your contract, no matter what happens to the price of electricity in the market.
Variable-rate plans have rates that can change at any time. The electricity provider will pass along any changes in the price of electricity to you, either through a higher monthly bill or a lower rate per kilowatt-hour (kWh).
There are pros and cons to both types of plans. Fixed-rate plans offer stability and predictability, which can help you budget for your electricity usage.
They also protect you from sudden increases in the price of electricity. Variable-rate plans offer flexibility and can be cheaper than fixed-rate plans, especially when electricity prices are low.
However, they can also be more expensive than fixed-rate plans when electricity prices are high. Which type of plan is best for you depends on your electricity usage, your budget, and your comfort level with risk.
Consider Your Electricity Usage
The first step in deciding variable vs fixed rate electricity plan is right for you is to understand your electricity usage.
How much electricity do you use? Do you use more electricity during the summer or the winter? Do you have any appliances that use a lot of electricity, such as an air conditioner or electric heat?
The answers to these questions will help you understand how your electricity usage varies throughout the year.
If you use a lot of electricity during the summer, you may want to consider a fixed-rate plan. This is because electricity rates are typically higher during the summer due to higher demand.
If you use a lot of electricity during the winter, you may want to consider a variable-rate plan. This is because electricity rates are typically lower during the winter due to lower demand.
If you have appliances that use a lot of electricity, such as an air conditioner or electric heat, you may want to consider a fixed-rate plan. This is because these appliances can cause your electricity usage to spike, and you don’t want to be surprised with a high bill.
Consider Your Budget
The second step in deciding whether a fixed-rate or variable-rate plan is right for you is to understand your budget. How much can you afford to pay for electricity each month?
Are you comfortable with the idea of your electricity bill going up or down each month? The answers to these questions will help you understand how a fixed-rate or variable-rate plan will impact your budget.
If you can’t afford to have your electricity bill go up or down each month, you may want to consider a fixed-rate plan. This is because you will know exactly how much your bill will be each month, and you can budget accordingly.
If you are comfortable with the idea of your electricity bill going up or down each month, you may want to consider a variable-rate plan. This is because you may be able to save money when electricity rates are low. However, you will need to be prepared for your bill to go up when electricity rates are high.
Consider Your Tolerance Of Risk
The third step in deciding whether a fixed-rate or variable-rate plan is right for you is to understand your comfort level with risk. Are you comfortable with the idea of your electricity bill going up or down each month?
Are you comfortable with the idea of your electricity rate changing at any time? The answers to these questions will help you understand how a fixed-rate or variable-rate plan will impact your comfort level.
If you are comfortable with the idea of your electricity bill going up or down each month, you may want to consider a variable-rate plan. This is because you may be able to save money when electricity rates are low.
Uou will need to be prepared for your bill to go up when electricity rates are high. If you are not comfortable with the idea of your electricity bill going up or down each month, you may want to consider a fixed-rate plan.
This is because you will know exactly how much your bill will be each month, and you can budget accordingly.
Cancellation And Termination Fees
The term of a variable rate electricity contract is the length of time it is in effect, typically ranging from one month to one year. During the term of the contract, the customer agrees to pay the variable rate as determined by the market.
The customer will also agree to a minimum term of service, which is the minimum amount of time they must remain in the contract. After the contract expires, the customer can choose to renew the contract or switch to another provider.
Depending on the contract, there may also be an early termination fee if the customer decides to cancel the contract before it expires.
Electricity providers, for example in Texas’s deregulated market, might charge a fee if you cancel your contract before your contract expires. This fee can be as high as $150-$200. You should always read the fine print of your electricity plan before signing up to make sure you understand the cancellation fee.
Summary – Variable Vs Fixed Rate Electricity
The best type of electricity plan for you depends on your electricity usage, your budget, and your comfort level with risk.
