Is it time to fix your electricity rates?


Are you the type of person who just wants the lowest prices right now, or are you happy to play the long game in search of the best deal? When it comes to energy plans, this is a decision you’ll have to make.

You may not be aware, but just like home loans, energy plans can come with fixed or variable rates. It’s all about predicting how much prices are likely to change and how this might impact your budget.

The majority of electricity plans come with variable rates, but at a time when the market is going through a period of change and the cheapest deals are expected to get a little more expensive in the near future, this could be a good time to fix your power prices, provided you find a competitive deal.

Canstar Blue looks at average fixed and variable energy rates in New South Wales, Victoria, Queensland and South Australia to determine whether or not fixing your energy rates could be a good move (as of April 2019).

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What is a fixed rate energy plan?

A fixed energy rate plan is an agreement whereby your electricity provider will not change the rates it charges you for power over a set period, usually one or two years. By guaranteeing today’s rates on electricity for one or two years, customers are protected from a couple of rounds of price changes (often rises) and are afforded a bit more certainty when budgeting ahead.

Unlike most other market offers, fixed rate contracts generally don’t include bonus discounts for paying your bills on time, or via direct debit (although there are exceptions). Additionally, customers could be charged an exit fee for leaving a fixed rate plan before the contract period expires. This early exit fee is usually between $50 and $100 depending on whether the contract was breached in the first or second year, for example.

There may be more than 30 energy retailers in Australia, but only the big three – AGL, EnergyAustralia and Origin Energy – and one or two smaller players, offer fixed rate electricity deals, and some plans may not be available in all areas.

  • Fixed rate energy plans are not to be confused with fixed cost energy plans, whereby customers pay the same amount every billing period.

What is a variable rate energy plan?

Variable rate plans are the standard type of energy deal and are offered by almost all retailers. On a variable rate plan, your power company is free to change the rates it charges you at any time, provided it gives you notice. However, prices are typically only changed every 12 months – in July if you live in New South Wales, Queensland or South Australia, or January if you live in Victoria.

Variable rate energy contracts often come with large conditional discounts which can make them more immediately affordable than fixed rate deals. In addition, the majority of variable rate plans have no exit fees, so it’s easy to switch providers whenever you want. However, getting the best deal with variable rates will usually require ongoing homework as discounts are regularly changed and providers become more or less competitive very quickly.

The challenge for consumers is to decide whether there is better long-term value in fixing energy prices, or sticking with variable rates in the hope they don’t change too much. Without a crystal ball, you’ll never know for sure. But our research shows that taking a gamble on fixed rates could be a smart move – not least because they can already work out cheaper than variable rate offers in the short-term, as well as the long-term. Confused? We don’t blame you. But read on as we explore the subject further and compare average prices across the states.

The background

Fixed rate energy plans tend to come and go – when the wholesale market is difficult to predict, the retailers have a habit of removing their fixed rate products given the uncertainty. However, at the time of writing, AGL, Origin and EnergyAustralia offer fixed rate plans in most areas – and, incredibly, they often work out cheaper than their variable rate deals.

So why might the cheapest energy plans become more expensive?

We mentioned above that the cheapest energy deals could soon become more expensive, so why would that be? Well, 2019 is set to be a big year of change for energy retail in Australia, with the launch of a new Default Market Offer for electricity pricing. This will effectively act as a price cap, meaning that lots of households currently paying the most expensive rates will soon start to save money by being switched onto a cheaper default contract.

The potential downside to this, however, is that engaged energy customers who have searched out the best deals could soon end up paying more as the retailers can no longer afford to offer them. So the difference between the cheapest and the most expensive plans should start to narrow, but for this to happen there are winners and losers.

This is why locking in competitive rates now could be a smart move, especially considering fixed rate deals currently make up some of the cheapest deals in NSW, Victoria, Queensland and South Australia already.

Fixed vs variable energy rates in SE Queensland

AGL, Origin and EnergyAustralia all offer fixed rate energy plans in Queensland. To see if a fixed rate plan can help you save money, Canstar Blue has calculated the average fixed and variable rate prices from these three retailers. Given that these retailers often have multiple variable rate deals, we have compared their cheapest variable rate offers at the time of publication.

Average Fixed Rate Cost Average Variable Rate Cost
$1,442.50 $1,496.81

*Costs based on annual statistics from AER for a three-person household on the Energex electricity network in Brisbane, April 2019. Annual costs based on plans from AGL, Origin and EnergyAustralia.

So, what do the retailers know that we don’t? In Queensland, we see that the average fixed rate plan from the big three providers is already cheaper than the average variable rate offer (and remember we have compared their fixed rate deals with their cheapest variable rate offers). When you consider that variable rate plans are likely – it would seem – to rise in the coming 12 to 24 months, going for fixed rates now seems to be a no-brainer.

Given that the fixed rates currently available can be locked in for a year or two (depending on the plan and provider you choose), average fixed rate prices will almost certainly be cheaper in the long run. If prices on the cheapest deals increase, those on a fixed rate plan will likely be onto a winner straight away. In fact, they already are, as our calculations have shown.

Fixed vs variable energy rates in NSW

AGL and EnergyAustralia are the only retailers to offer fixed rate plans to New South Wales customers. To see if these deals are worthwhile, we once again calculated the average fixed rate cost over a year compared to the average variable rate prices (based on the cheapest variable rate deals from each provider).

Average Fixed Rate Cost Average Variable Rate Cost
$1,494.40 $1,578.45

*Costs based on annual statistics from AER for a three-person household on the Ausgrid electricity network in Sydney, April 2019. Annual costs based on plans from AGL and EnergyAustralia.

In New South Wales, the average fixed rate price again comes out cheaper than the average variable rate deal. So why wouldn’t you lock-in rates now? It does seem strange that the retailers are making their fixed rate offers more competitive than their variable rate deals at the moment – but then, this is the energy industry we’re talking about.

Fixed vs variable rates in South Australia

South Australians pay more for electricity than anyone else in the country, so does a fixed rate energy plan offer any escape? The big three retailers all currently offer fixed rates in SA and this is how average prices compare to the variable rate average (using their cheapest variable rate plans).

Average Fixed Rate Cost Average Variable Rate Cost
$2,132.21 $2,177.63

*Costs based on annual statistics from AER for a three-person household on the SA Power electricity network in Adelaide, April 2019. Annual costs based on plans from AGL, Origin and EnergyAustralia.

The difference between average fixed and variable rates in South Australia again suggests that locking in now is a no-brainer! It seems unlikely that variable rate plans are going to become significantly cheaper any time soon, after all!

Fixed vs variable rates in Victoria

Victorian energy customers can also pick between all three big providers when it comes to fixed rate energy plans. This is how average fixed prices compare to average variable rates in Victoria.

Average Fixed Rate Cost Average Variable Rate Cost
$1,197.84 $1,279.72

*Costs based on annual statistics from AER for a three-person household on the Citipower electricity network in Melbourne, April 2019. Annual costs based on plans from AGL, Origin and EnergyAustralia.

Once again, we see that the average fixed rate plan from the big three retailers currently works out cheaper than the average variable rate plan, going against conventional wisdom. Maybe the retailers are making their fixed rate deals so competitive in an effort to keep customers on board in the long-term, when many are shopping around and switching?

Fixed or variable energy rates: Which way should you go?

In a nutshell, fixed rate energy deals are likely to prove a good bet in most cases, giving consumers a little more certainty over what they can expect to pay, certainly compared to variable rate plans. And given that many fixed rate products are already cheaper than variable options, locking in competitive prices now seems like a smart move. As long as they are competitive – not all of them are.

However, as mentioned before, there is no guaranteed right or wrong answer in any state – it’s impossible to predict whether fixed or variable rates will work out cheaper in the long run. While there is speculation that the cheapest energy deals will become slightly more expensive in the year ahead, the energy market is still hugely competitive and the retailers will still need to compete to attract new customers. So it could be that keeping things variable will work out perfectly fine.

It should be noted that the average variable rates provided are those from the same providers that offer fixed rate plans. Other energy companies may offer cheaper variable rate deals. At the end of the day, the decision between fixed or variable rates could depend on what type of energy customer you are:

  • You may want to choose a fixed rate plan if you don’t like the idea of regularly switching electricity providers and prefer a ‘set and forget’ approach to energy. Fixed rate contracts are likely to work out cheaper than sticking with a variable rate deal where the conditional discount has expired.
  • You may want to choose a variable rate plan if you are happy to frequently change energy providers to find the best deal on electricity. Chasing the cheapest variable rates may prove the cheapest bet.

Like with any financial decision, tunnel-vision is your worst enemy when shopping around for the best deal on electricity. Make sure you understand your electricity usage and have considered your energy needs in the future. You can start comparing energy providers and plans with Canstar Blue’s comparison tool, via the link below.

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