Selecting the right energy plan for your business is an important decision that can dramatically affect your operating costs. Whether you run a small enterprise or manage a large corporation, you need to know the difference between fixed and variable energy plans. In this article, we will discuss the pros and cons of each option to help you choose the best one for your company’s particular type of energy needs.
What is a Fixed Business Energy Plan?
When you compare business energy plans, think about your company’s energy consumption, budget flexibility, and appetite for risk. A fixed energy plan is one that locks in your rates for a set period, usually between one and three years. During this period, the wholesale market price does not have an effect on the price you pay per unit of energy. This type of plan gives businesses the stability of price, which helps them to have more predictable budgeting.
Why Fixed Energy Plans are Beneficial
The main advantage of a fixed-rate plan is protection from market volatility. No matter how much energy prices spike due to external causes, such as supply shortages or geopolitical tensions, your company won’t be impacted by these changes.
In addition, companies that have long-term budgeting plans can know their expenses will not increase overnight. It helps plan finances better, especially for businesses on a tight margin.
Fixed Energy Plans Drawbacks
With fixed plans, prices are more stable, but the plan can be limiting. If there is a reduction in energy prices during the contract period, it will not help your business. You’re paying the higher rate, so you’re effectively overpaying for energy compared to current market rates.
The other downside of fixed contracts is that they usually have termination fees. These penalties can be unexpected costs should you have to switch providers before the contract expires.
A Variable Business Energy Plan
Variable energy plans have rates that change with the market. Month to month, you can pay the price you pay based on wholesale energy costs, supply, and demand. This type of plan is flexible but also unpredictable.
Advantages of Variable Energy Plans
Variable energy plans benefit businesses that choose them when market prices fall. When energy rates fall, your company will begin to pay less for electricity or gas. This flexibility can prove especially valuable to companies that can watch energy markets and time their usage when prices are low.
Variable plans also provide more contract flexibility. Some don’t need long-term commitments, and you can switch plans or providers without incurring huge termination fees.
Disadvantages of Variable Energy Plans
One big drawback of a variable rate plan is that you’re exposed to market volatility. High demand or supply shortages mean that energy prices can quickly spike to exponentially high levels that can make your business exposed to sudden swings in your operating costs.
In addition, managing energy costs under a variable plan often means more active involvement. Rate hikes can bring an extra layer of complexity to energy management, as companies have to watch the market trends closely to make sure they’re not caught off guard.
How to Compare Business Energy Plans
If you want a degree of predictability on your utility costs, then a fixed rate plan might suit you. However, companies that can afford to ride market dips and can stand some volatility may prefer the flexibility of a variable plan.
Plan Choice and Energy Consumption
Choosing the right plan depends a lot on how much energy your business uses. Companies with large energy needs can be content with a fixed plan because it locks them into a level rate, shielding them from price increases. You may choose a variable plan if you’re a smaller business or have variable energy needs.
So Which Is Right for Your Business?
In the end, it’s really a case of what your business needs and what your risk tolerance is. Businesses that want to manage costs over the long term will find fixed plans stable and predictable. Variable plans are flexible in allowing you to save when the market is favourable but at the same time involve increased risk.
Before you make a final call, compare business energy plans and talk to energy providers to identify the plan that is the most appropriate to your company’s operational aims and financial strategy.