Understanding energy discounts

Everyone likes the feeling of getting a bargain, so when you see an electricity plan that promises a discount on your bill, it’s natural to be drawn to that particular offer. However, before you go ahead and switch providers, it’s important to understand exactly what you’re getting, and what you stand to lose if things don’t work out as planned.

There’s no doubt that discounts are a great way to reduce your overall costs, provided of course that you are able to meet and stick to the conditions of those discounts. You’ll typically be offered discounts with electricity plans for:

  • Paying your bills on time
  • Paying your bills by direct debit
  • Receiving your bills and other communications via email

Put simply, you’ll be offered a discount for things that make life easier for your energy provider, or just costs them less money, such as sending bills via email instead of post. It’s also common to see discounts available if you meet a combination of these conditions.

Getting the best discount

To work out if you’re really getting a good deal, you first need to understand what you are getting a discount off. Discounts will usually apply to one of the following:

  • Usage charges
  • Supply charges
  • Your entire bill

For most households, getting a discount off usage charges rather than supply charges will result in greater savings. Your supply charge is simply a fixed amount you pay every day just to be connected to the electricity grid, while usage charges are what you actually pay for using your washing machine or watching your TV in the evening, for example. It’s preferable to find a discount that is off your entire bill, but these are not very common.

So what kind of discounts will you find? Canstar Blue research shows that discounts of 30% or more off usage charges are common in Victoria where competition between the electricity providers is fierce. Depending on the provider, this could save an average five person household in the state around $150 per quarter, or $600 a year.

Households in New South Wales and South Australia can expect to find discounts in the region of 20%, but those in Queensland are yet to see any major benefit of electricity price deregulation, with only modest discounts currently available.

Benefit terms

Once you understand what your discount involves, and what you stand to save, you can start to think about benefit periods and the long-term value on offer. It’s important to remember that discounts are designed to attract new customers, and in many cases they will only apply for 12 months. That’s why you should pay attention to when your discount expires, because it may not return. If you don’t contact your energy provider at the end of the term, you will start paying its basic rate for electricity, which will of course be more than you’re used to.

With this in mind, there might be better value in finding a plan with a smaller discount, but that runs for two years or more. Once you start comparing electricity plans, you are likely to find providers offering longer term deals, or even find one that has a lifetime discount. And of course, there is nothing stopping you trying to negotiate a longer term with your provider.

Things to be aware of

Discounts are a great way to cut your overall costs, but only if you stick to the conditions. Failure to do so will not only result in you losing the benefit, but you could also be charged a fee. If you fail to meet the conditions, you will start paying your provider’s basic rate for power, and it’s common that the plans with the highest discounts also have the highest basic price for electricity.

This is why customers who often struggle to pay their bills on time might be better advised to find an electricity plan with the lowest basic usage charges, rather than chasing the big discounts. Signing up to a high discount offer and failing to meet the terms is a bad move, but if you can stick to the agreement then you stand to save a lot of money.

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