As a business owner, you can choose either a fixed or variable energy plan to help lower your electricity and gas costs. However, this option only exists if your business is located in a deregulated energy market and you have the power to choose your energy supplier.
A fixed energy plan can offer your business various benefits, including a more predictable energy bill and protection from increasing energy rates. Conversely, a variable energy plan allows your business to lower costs if there are declining energy rates.
As with most things in life, there are no guarantees on future energy rates. Consequently, you should compare the pros and cons of a fixed or variable energy plan before determining which is best for your business.
Let’s discuss the fixed or variable energy plans that will help your business lower costs and increase energy efficiency.
Fixed Or Variable Energy Plan Overview
When researching the right energy plan for your business, you need to understand the differences between a fixed or variable energy plan, its potential benefits, and financial risks. Equally, your business’ monthly energy bill may fluctuate significantly based on the chosen type of energy plan.
Also, you should recognize that energy rates (prices) are unpredictable and can change rapidly in the future.
What Is A Fixed-Rate Energy Plan?
A fixed-rate energy plan (electricity or natural gas) is where the price for every unit (kilowatt-hour (kWh) or therm of gas) is fixed until the end of the contract term. Therefore, no matter what happens to the energy market, your energy rate will not be affected.
The price you are paying for a fixed-rate energy plan depends on the energy prices on the wholesale market at the time you sign your contract. You are attempting to lock in a low rate (price) in anticipation that future rates will rise. Basically, your business wins with lower energy costs during the energy plan contract period.
The contract duration periods for fixed-rate energy plans are based on the selected Retail Energy Provider (REP). For example, the term lengths for fixed-rate energy plans are 12, 18, 24, and 36 months.
Since your fixed rates are always predictable and you know your historical usage, you can budget how much you will be spending monthly.
With a fixed-rate energy plan, your business’ monthly energy bill will vary based on the amount used each month. However. you will still be paying a fixed rate (price) per kWh of electricity or therm of gas.
- A fixed-rate energy plan protects your business from spikes in energy prices.
- It provides your business reliability and budgeting ease using historical usage patterns.
- There is no need to worry about increases in wholesale energy rates during the contract duration.
- A fixed-rate energy plan generally offers better rates (prices).
- If wholesale energy rates decline during the contract period, your business will not benefit from the savings.
- A fixed-energy rate plan is only available via a contract.
- While your energy rate is fixed, your business is bound to the contract until it expires.
- There is an early termination fee if you wish to cancel before expiring.
What Is A Variable-Rate Energy Plan?
A variable-rate energy plan (electricity or natural gas) is where the price for every unit (kilowatt-hour (kWh) or therm of gas) changes periodically as the wholesale energy markets change. So, your business energy rates will typically be changing monthly while being guaranteed greater risk and volatility of change.
Among the factors that influence the wholesale energy market include supply, demand, gas storage, weather, temperature, government regulation, imports, and exports, etc. Consequently, a business generally does not choose to have a variable-rate energy plan contract unless there is the desire to minimize the range of rate changes and level of financial risk.
Since your variable-rate energy plan is always subject to factors outside your control, it will be more difficult for your business to budget how much you’ll be spending monthly. Basically you are betting on low average energy rates in the future.
- A variable-rate energy plan allows your business to take advantage of declining wholesale energy rates.
- Generally, you are not bound to an energy contract.
- A fixed-rate energy plan does NOT protect your business from spikes in energy prices.
- It does NOT provide your business reliability and budgeting ease using historical usage patterns.
- There is a need to worry about increases in wholesale energy rates.
- Variable-rate plans are an option for businesses with anticipated changes that will affect energy usage.
- Any business that likes the flexibility of not being stuck in a contract.
Fixed Or Variable Energy Plan Conclusion
Whether fixed or variable energy plans, each offers its unique benefits to a business owner. Whether you find that a fixed-rate energy plan or variable-rate energy plan is best for your business, it is important to review and consult before signing with a new energy provider.
You should make sure to review the contract and seek advice to be fully informed. For example, the type of rate offered, the price, the length, terms, conditions, additional fees, and the company’s cancellation clause.