As a business owner, one of the most significant decisions you'll make to keep your energy bills as low as possible is choosing between a fixed-rate or variable-rate energy plan.
Both options have their advantages and disadvantages, and understanding these differences is essential to making the right decision for your business.
Fixed-rate energy plans offer a set price for energy consumption over a fixed period, usually between 1-3 years. This type of plan offers price certainty, which means you won't be affected by market fluctuations or sudden price spikes during the contract term.
You know exactly what to expect when you get your energy bill each month, which makes this type of energy plan particularly attractive for businesses with stable year-round clients and that prefer working with predictable budgets, eg. childcare, offices, medical premises.
Meanwhile, variable-rate energy plans offer a more flexible and less predictable approach to energy pricing. The energy price is subject to market fluctuations, which means the price can rise or fall at any time.
This type of plan is best suited for businesses that can take advantage of cheaper energy prices during periods of low demand, or those who aren’t as reliant on the certainty of fixed prices in their budgets.
Fixed-rate tariff
Pros
Price certainty: Fixed-rate energy plans offer protection against price fluctuations in the energy market, providing stability and certainty in energy costs.
Budget stability: Businesses can budget for energy costs over the contract term with certainty, making it easier to plan and manage finances.
Predictability: Fixed rates offer predictable monthly or quarterly bills, making it easier to manage cash flow.
Cons
Higher costs: You may pay more for a fixed-rate plan, to lock in that certainty.
Less flexibility: Fixed-rate plans can be less flexible, meaning you can’t adjust energy usage during periods of low demand or take advantage of cheaper energy prices.
Variable-rate tariff
Pros
Lower initial costs: Variable-rate energy plans typically have lower initial costs than fixed-rate plans.
Greater flexibility: Variable-rate plans allow businesses to take advantage of cheaper energy prices during periods of low demand.
Shorter contract terms: Variable-rate plans often have shorter contract terms, providing businesses with flexibility to switch to other plans or suppliers.
Cons
Price volatility: Variable-rate plans expose businesses to price volatility, which can lead to higher bills during periods of high demand.
Lack of certainty: Variable-rate plans offer less price certainty, making it harder for businesses to budget for energy costs over the contract term.
Risk: Variable-rate plans carry the risk of sudden price spikes if wholesale markets move, which can have a significant impact on business profitability.
Choosing between fixed and variable energy plans for your business
Consider your business’s consumption patterns, budget and risk tolerance to decide which option is best for you. Fixed-rate plans may be better suited for businesses that require price certainty and stable budgets, while variable-rate plans can be ideal for businesses that require the flexibility of short-term contracts.
The decision between fixed and variable-rate energy plans will depend on your business's individual needs and priorities and at Zembl, we are in the business of working with you to identify your energy usage patterns, and then negotiate the best possible energy rate for your business's situation.
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