If energy was like any other commodity, the price would be set by the market and would fluctuate with supply and demand. However, because energy is essential to our daily lives, governments regulate prices. This means that the energy price can vary depending on the country, state, or province in which you live.
In deregulated markets, such as the United Kingdom, energy providers compete for your business by offering different business electricity prices for their electricity and natural gas. This can be confusing because there are two types of rates: variable and fixed. Most businesses will be able to find a fixed rate that suits their needs, but it’s important to understand the difference between the two before signing up for an energy plan. You can find a comparison of several energy suppliers on a commercial electricity comparison website to help you make an informed decision.
In fact, many businesses choose to switch energy providers every few years to take advantage of the best electricity prices. The problem is that each time you switch, you risk ending up on a worse deal than your current one. This is why it’s important to understand the difference between variable and fixed rates, so you can make an informed decision about which type of rate is best for your business.
But what do these terms mean? Read on to determine the difference between a variable rate and a fixed rate energy plan.
What Is a Fixed Rate Energy Plan?
This is an energy plan where the price per unit of energy (per kWh) is fixed for a set period of time, usually 12 to 24 months. You will pay the same kWh price when signing a fixed-rate contract. Contrary to what some people may believe, your bill remains different each month. Although your usage may differ, the cost per kWh remains the same. Your bill may fluctuate, but it will be simpler to estimate how much you will owe.
Your fixed-rate plan will come in handy if interest rates rise. You could wish you had a variable plan if interest rates suddenly fall. Energy costs can fluctuate, so keeping that in mind is vital. Being able to lock in a fixed rate has the advantage of facilitating better financial planning.
What Is a Variable Rate Energy Plan?
A variable-rate energy plan is an energy plan where the price per unit of energy (per kWh) can go up or down during your contract period. The length of time for a variable contract is usually shorter than for a fixed rate, though this varies by region. The advantage of a variable rate is that if energy prices go down, you will pay less. However, if they go up, you will pay more.
A variable rate may start out being lower than a fixed rate, making it an attractive option for those who want to save on their energy costs in the short term. In the long run, however, you may end up paying more with a variable rate if energy prices go up.
Which Rate Should I Choose?
This is a difficult question to answer, as it depends on your specific needs and circumstances. If you are someone who likes to take risks, you may be more inclined to choose a variable rate. On the other hand, if you would rather play it safe, a fixed rate may be the better option for you.
You may consider choosing a fixed rate if:
- You live in an area where energy prices are volatile and tend to go up often
- You want to insulate yourself from rising energy prices
- You want the peace of mind of knowing how much you will pay for energy each month
- You are on a tight budget and need to be able to predict your monthly expenses
Alternatively, you may want to choose a variable rate if:
- You live in an area where energy prices are stable
- You think energy prices will go down in the near future
- You want the flexibility to switch to a fixed rate if energy prices start to rise
- You are comfortable with a little bit of uncertainty in your monthly budget
Of course, this is not an exhaustive list of all the factors you should consider when choosing between a fixed-rate and a variable-rate energy plan. Ultimately, the decision comes down to your personal preferences and needs.
How Often Do Energy Rates Change?
According to CNCB, Britain’s energy regulator confirmed it would raise its main limit on consumer energy bills to an average of £3,549 ($4,197) per year from £1,971 annually in response to calls from campaign groups, politicians, and think tanks for the government to address the cost-of-living crisis.
- The price cap sets a maximum amount that homes energy suppliers can charge for their combined electricity and gas bills in England, Scotland, and Wales.
- However, Ofgem periodically updates it to account for changes in wholesale market pricing and other business expenses.
It’s also worth noting that some energy providers offer protection from rate hikes for a set period of time. This means that if prices go up during your contract, your rate will not increase. However, it’s important to remember that even with a price protection plan, your rates could still go up at the end of your contract period unless you switch to a new plan.
To sum up, energy rates can change often, and it’s important to be aware of this when choosing an energy plan. A fixed-rate plan can give you peace of mind knowing that your rate will not increase during your contract period, while a variable-rate plan may be more advantageous if you think energy prices will go down in the future.
When you are shopping for energy plans, be sure to compare the prices of both fixed-rate and variable-rate options. Pay attention to the contract’s length and the price per kWh. Consider your needs and preferences before making a decision. If you are still unsure, speak to an energy advisor to learn more about your options.
Having a business is a lot of work. As a business owner, you must wear many hats and juggle a million daily tasks. Choosing the right energy plan is one of the most important but often overlooked aspects of running a business. The type of energy plan you choose will greatly impact your bottom line, so it’s important to make an informed decision.