When signing up for a new electricity plan, you may see several different terms and plan types. One common plan type is fixed-rate electricity, which gives you the ability to lock in an energy rate for a certain length of time and protect yourself from energy market price spikes. We share how a fixed-rate plan works and how this type of plan can benefit you.
- Fixed-rate electricity allows you to lock in a set rate for the length of a contract
- This summer, we may experience higher than average temperatures, which will affect energy prices.
How it works
A fixed-rate electricity plan allows you to pay the same electric rate per kilowatt-hour (kWh) for the length of the plan, even if market prices fluctuate. This plan normally involves a contract for the length of your choice, ranging from three to 36 months. Keep in mind that this fixed rate only applies to your electricity use, and other fees like electricity delivery charges and taxes may be added.
If you sign up for a 12-month electric plan with a fixed rate of 10 cents per kWh, you will be charged 10 cents for every kWh you use every month for 12 months. If you use 1,000 kWh one month, your electricity charge for that month will be $100. Your electricity bill will include this electricity charge plus applicable delivery charges and taxes.
Why Should You Sign Up for a Fixed-Rate Electricity Plan?
A fixed-rate electricity plan protects you from price spikes in the electricity market that can occur during times when demand is high, such as months with extreme temperatures.
The high summer temperatures will cause air conditioners around the country to work harder to keep homes cool and result in many people opting to entertain themselves at home, increasing energy use and demand from the power grid. The closure of power plants means that less energy is being supplied to the market. Economics 101 tells us that increased demand plus decreased supply means higher market prices.
Due to these events, the cost of purchasing electricity from the power grid is much higher, so retail electric providers have to sell electricity at a higher price. When this happens, some providers may not be able to keep up with the rising prices, which causes them to leave the electricity market. Customers of these providers are then switched to a new provider so that they do not lose service, but they often pay a higher rate with their new provider because the new provider has to account for a sudden influx of customers when the previous provider goes out of business. In the Texas electricity market, providers that gain customers due to others leaving the market are called providers of last resort.
If you are currently on a variable-rate plan or your electricity provider goes out of business, you should sign up with a fixed-rate electricity plan as soon as possible to protect yourself from the cost of rising electricity prices. Direct Energy has a variety of fixed-rate electricity plans so you can find the perfect plan for your home and lock in a rate free from market price spikes. Our usage insights tool helps you track your energy usage so you can save even more!