Is it time to fix your electricity rates?

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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 energy plans come with variable rates, but at a time when electricity prices are expected to soar, this could be a good time to fix your power prices.

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 is likely to pay off.

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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 two years. By guaranteeing today’s rates on electricity for two years, customers are protected from two rounds of rising power prices 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. Additionally, customers are charged a fee for leaving a fixed rate plan before the two-year contract period expires. This early termination fee is usually between $50 and $100 depending on whether the contract was breached in the first or second year.

There may be more than 25 energy retailers in Australia, but only the big three – AGL, EnergyAustralia and Origin Energy – offer fixed rate energy deals, but 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 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 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 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 rise 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.

Fixed vs variable energy rates in SE Queensland

AGL and EnergyAustralia are the only two retailers to offer fixed rate energy plans in Queensland. To see if a fixed rate plan can help you save money, Canstar Blue has calculated average fixed and variable rate prices from these two retailers.

Average Fixed Rate Prices Average Variable Rate Prices
$527.63 $499.70

Costs based on yearly usage calculations broken down into quarterly payments, based on statistics from AER for a five person household on the Energex network in Brisbane.

As you would expect, average fixed rate costs come out more expensive at first, but only by about $28 per quarter. You might think it’s a no-brainer and head straight to a variable rate offer, but first stop and consider that variable rate prices will continue to climb over the next two years, while fixed rate prices are locked in for that period. This means that average fixed rate prices will almost certainly be cheaper in the long run. If prices increase by more than 5% or so in the first year, those on a fixed rate plan will likely be onto a winner straight away. And by the time the second round of price changes comes in, the savings will really start to add up.

Fixed vs variable energy rates in New South Wales

The big three power companies all offer fixed rate plans to New South Wales customers. To see if these deals are worthwhile, we once again calculated average fixed and variable rate prices.

Average Fixed Rate Prices Average Variable Rate Prices
$504.72 $462.77

Costs based on yearly usage calculations broken down into quarterly payments, based on statistics from AER for a five person household on the Ausgrid network in Sydney.

In New South Wales, average fixed rate prices again come out marginally more expensive than average variable rates, by about $42 per quarter. Once again, however, you must consider that average variable rates are likely to increase significantly in the next year or two, while the prices you lock in will not move an inch. Another point to consider is that these variable rate prices are made so competitive as a result of conditional discounts, which may also expire after the first year. This is why getting the best deal with variable rates requires ongoing effort.

Fixed vs variable rates in South Australia

South Australians pay more for electricity than anywhere else in the country, so does a fixed rate energy plan offer any escape? Only Origin and EnergyAustralia currently offer fixed rates in SA and this is how average prices compare to variable rates.

Average Fixed Rate Prices Average Variable Rate Prices
$716.25 $612.55

Costs based on yearly usage calculations broken down into quarterly payments, based on statistics from AER for a five person household on the SA Power network in Adelaide.

The difference between average fixed and variable rates in South Australia is pretty staggering – a little over $100 per quarter! This would suggest that energy providers are planning ahead for some significant price increases in the years to come. This makes the choice between fixed or variable energy rates much less straightforward than in other states. South Australians may be better off sticking with competitive variable rates, as long as they regularly shop around for the best deals.

Fixed vs variable rates in Victoria

Like in NSW, 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 Prices Average Variable Rate Prices
$489.94 $413.22

Costs based on yearly usage calculations broken down into quarterly payments, based on statistics from AER for a five person household on the Citipower network in Melbourne.

As you can see, average fixed rate electricity costs work out around $75 more expensive per quarter, but remember that these variable costs are made so competitive because of large conditional discounts in Victoria which may disappear after the first 12 months. Also consider that average variable rates will likely increase significantly over the next two years. However, given the incredibly competitive nature of the Victoria energy market, the choice between fixed and variable rate plans is not so obvious. Households may be better off keeping things flexible and keeping a close eye on the best variable deals.

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 Queensland and New South Wales, but consumers in South Australia and Victoria may be better off looking for the cheapest variable rates on offer. 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.

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 with no conditional discount.
  • 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 best deal on electricity. Make sure you understand your electricity consumption 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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