What Is A Variable Rate Electricity Plan?

Are you wondering what is a variable rate electricity plan? Find out all you need to know about variable electricity tariffs here with Savvy. 

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, updated on July 27th, 2023       

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Understanding electricity bills and how electricity plans are structured is important if you want to save money on your energy bills. By knowing what a variable rate electricity plan is, as opposed to a fixed rate plan, you can make smart choices when comparing electricity plans. Knowing about variable or fixed rate electricity plans gives you the power to make the right choice when you come to choose your next energy retailer. Find out all about variable rate electricity plans here with Savvy. 

What is a variable rate electricity plan?

Variable rate electricity plans are the standard energy deals offered by almost all retailers. With variable rate plans, the price you’re charged for electricity can change at any time, typically every six or 12 months, depending on your location. While prices can be adjusted outside of these times, they are generally changed on 1 January or 1 July.

What affects the price of a variable rate plan?

The price of a variable rate electricity plan can be influenced by many factors. Here are the key factors that currently affect the price of a variable rate energy plan in Australia:

Wholesale electricity prices: Variable rates are often tied to fluctuations in the wholesale electricity price. If the wholesale price increases, it can lead to higher variable electricity rates for consumers.

Market conditions: Market conditions, such as supply and demand dynamics, can impact variable rates. During periods of high demand or low supply, the rates you pay for electricity may increase. Recent events which have impacted the supply of electricity in Australia include:

– Geopolitical influences, including war: the Ukraine war, and subsequent sanctioning of Russian fuel supplies has driven up the cost of gas and oil around the world.
– Ageing infrastructure: Australia’s so-called ‘dirty’ coal-fired power stations are getting old, and are approaching the end of their useful life. For instance, in May 2023 the Liddel coal power station in NSW closed for good after 52 years of service.
– Transition to renewable energy sources: as the world attempts to reduce the generation of harmful greenhouse gases such as methane and carbon dioxide, the race is on to convert to renewable ‘clean’ energy sources. However, this transition requires building new infrastructure to generate electricity, which costs the taxpayer a great deal of money.

Network costs: The costs associated with maintaining and operating the electricity distribution network also influence variable rates. As more solar power is pumped into the grid, more networks and poles and wires are required to distribute this electricity across the country.

Renewable energy targets and government policies: Government policies, subsidies, and renewable energy targets also impact electricity prices, including variable rates. Recent changes in these policies have had an influence on the overall cost of electricity.

Retailer pricing strategies: Each retailer has its own pricing strategy, which determines the variable power rates they offer. Factors such as competition, market positioning, and business costs all play a role in determining retailer pricing strategy.

What is a fixed rate energy plan?

A fixed rate energy plan guarantees that your electricity provider will not change the rate you are charged for power within a specified time period, usually either one or two years. This protects customers from price rises during that time, providing greater budgeting certainty.

However, such plans also come with greater restrictions, such as early exit fees if you decide to change plans before the end of the fixed rate period. Fixed rate contracts usually do not include special offers such as discounts for on-time bill payments, or for setting up a direct debit payment arrangement.

The availability of fixed rate plans is also an issue. Although there are over 35 electricity retailers in Australia as of July 2023, only a handful currently offer fixed-rate plans, so the majority of electricity plans in Australia do have a variable rate.

Which type of electricity plan is cheaper – fixed or variable rate?

When it comes to choosing between fixed and variable rate electricity plans, the actual price margin between fixed and variable rate plans is quite small. This may be because energy retailers amend the price of their electricity plans quite frequently, to reflect average wholesale prices. This means the fixed rate plans that are available reflect the current wholesale pricing situation quite closely.

Basically, neither type of electricity plan is cheaper across the board. The decision as to which one may be cheaper for your household may ultimately depend on availability. It also depends on accurately predicting wholesale electrical price fluctuations and their impact on variable rate plans.

In reality, you may have little choice but to accept a variable rate plan, because fixed rate electricity plans are now few and far between, so the majority of Australians won’t have a choice in this matter.

Can I get discounts or incentives with a variable rate plan?

Yes, many electricity retailers in Australia offer discounts and incentives with their variable rate electricity plans. These discounts and incentives can help you save money on your electricity bills. Here are a few examples: 

  • Pay on time discounts: Many retailers provide discounts on your electricity bill total if you pay your bill on time. This encourages timely payments and rewards customers with lower rates. For example, one Aussie retailer offers a 5% discount on your usage charges when you pay your bill by the due date. 
  • Direct debit discounts: Setting up direct debit payments from your bank account can also make you eligible for additional discounts. Retailers may offer lower rates to customers who choose this payment method. For example, you may get a direct debit discount of $50 off your first bill when you sign up for a variable rate electricity plan and choose direct debit as your payment method. 
  • Contract sign-up bonuses: Some retailers may provide sign-up bonuses or credits when you switch to their variable rate electricity plans. These bonuses (of anywhere from $50 to $150) can help offset your energy usage costs or provide a financial incentive to switch plans. 
  • Bundle discounts: If you choose to bundle your electricity plan with other services from the same retailer, such as gas or internet, you may be eligible for bundle discounts of anywhere from 10% to 15% off your bundled energy bills.  

It's important to note that discounts and incentives can vary between retailers and plans. Make sure to compare electricity plans and read the terms and conditions carefully to understand the specific discounts and incentives which may be available.  

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Disclaimer:

Savvy is partnered with Econnex Comparison (CIMET Sales Pty Ltd, ABN 72 620 395 726) to provide readers with a variety of energy plans to compare. We do not compare all retailers in the market, or all plans offered by all retailers. Savvy earns a commission from Econnex each time a customer buys an energy plan via our website. We don’t arrange for products to be purchased directly, as all purchases are conducted via Econnex.

Any advice presented above is general in nature and doesn’t consider your personal or business objectives, needs or finances. It’s always important to consider whether advice is suitable for you before purchasing an energy plan. For further information on the variety of energy plans compared by Econnex, or how their business works, you can visit their website.