Everything Australian SMEs Need to Know About Fixed vs Variable Electricity Rates

As electricity costs become more expensive, bills will start climbing up. It’s how the cycle goes that small and medium-sized enterprises (SMEs) have to face, which begs the question, is there a way out? Fixed vs variable electricity rates. Which one is right for your business?

Whether you run a café, warehouse, office, or retail business in Australia, one of the biggest expenses you make goes straight to your energy bills.  Electricity prices continue to rise, which means you’re now paying more than in the past decades.

Fixed electricity plans may have a long list of benefits, but if your energy costs drop, you might realise that you’re spending a lot more on it.

Ponder and take into consideration the differences, pros, and cons in choosing the best energy plan for your business. So, keep reading to learn how both plans work. Compare them side by side if you insist.

Also Read: Energy Management Ecosystem Built for SMEs

What Does a Fixed Electricity Rate Mean?

The cost of electricity per kWh you have to pay always stays the same under what we call a fixed electricity rate plan. That’s why, on the surface, it’s easy to assume that your bills every month will always be the same. SMEs may even call it stable and predictable.

It is indeed correct to assume that the cost of electricity per kWh you pay for will always be the same. How you consume energy, however, is a different topic for a different day. It’s a big factor to consider when you question why your monthly bills won’t always stay the same under a fixed electricity rate. Running extra equipment and longer opening hours can contribute to usage, which can increase your bills.

Predicting how much you will have to spend gets a lot easier, on the other hand. You can even stay protected when interest rates suddenly increase.

Pros of Fixed-Rate Electricity Plan

Budget Certainty: With a fixed-rate electricity plan, your cost per kWh doesn’t change, which makes budgeting your energy bills easier and more predictable.

Protection AgainstIncreasingPrices: Even if wholesale electricity prices increase, your rateremains locked.

Simple to Manage: There’s no need to monitor market fluctuations over and over again. It’s meant to be simple and easy to manage.

Cons of Fixed-Rate Electricity Plan

Limited Flexibility: If electricity prices fall, you won’t benefit from lower rates while on a fixed plan.

Potentially Higher Costs: Some fixed-rate plans include a premium to cover market volatility, which could mean paying slightly more than the current market rate.

Long-Term Contracts: Fixed rates often come with long-term contracts with early exit fees if your business circumstances change.

What Does a Variable Electricity Rate Mean?

The cost of electricity per kWh you have to pay under a variable electricity rate plan, however, is determined depending on market conditions and other factors. Such factors include supply, demand, and wholesale prices, but they vary depending on the supplier.

Unlike fixed plans, the cost of electricity per kWh is not locked in, meaning your energy bills can go up or down depending on electricity prices. It changes without warning, it increases unexpectedly.

The upside that SMEs should consider with this plan lies in its flexibility and its potential to save more when energy prices drop. It also allows you to switch providers or plans more easily.

Pros of Variable-Rate Electricity Plan

Potential Savings: When energy prices drop, SMEs can have an advantage.

Flexibility: Easier to switch plans or providers without penalty.

Cons of Variable-Rate Electricity Plan

Budget Uncertainty: Energy bills may spike when electricity prices rise unexpectedly, which makes financial planning more difficult.

Requires Monitoring: SMEs need to monitor energy consumption and prices to make the most of this plan.

Comparing Fixed vs Variable Electricity Rates

The main difference in weighing plans with fixed vs variable electricity rates boils down to how the pricing is determined, contract terms, and budget control. Each plan has its own strengths and weaknesses. It’s up to you to decide which plan best suits your needs.

Do you prefer certainty over flexibility? Or is it the other way around?

Fixed Electricity Rate: Offer predictable costs, easier budgeting, and protection against rising energy prices. They’re ideal for SMEs with steady electricity usage who want stable energy bills and minimal surprises.

Variable Electricity Rate: Provide flexibility and the potential to save when energy prices drop, but bills can spike when rates increase. This plan is suited to SMEs that can actively monitor prices, adjust consumption, and switch plans if needed.

Other factors SMEs should also consider include:

Cost of electricity per kWh under each plan

Contract length and exit fees

How both plans can cause a change in your monthly bills, depending on usage

Weigh all these carefully, compare electricity rates side by side, and lay out your options to see which plan aligns with your business.

Why Are Fixed or Variable Rates Better for Gas?

Just like fixed-rate or variable-rate electricity plans, gas plans also come in fixed and variable options. They’re closely similar to one another. They work much the same way as those electricity plans, with similar strengths and weaknesses.

Fixed-rate gas plans provide predictable costs and easier budgeting, while variable-rate plans offer more flexibility and the potential to save when prices drop. The strengths and weaknesses mirror those of electricity plans, so SMEs can choose a gas plan based on consumption patterns, budget preferences, and willingness to manage price fluctuations.

In some regions, regulated pricing frameworks set maximum charges for gas, offering another example of regulated gas pricing for businesses.

Fixed vs Variable Electricity Rates: Which Is the Best Energy Plan for SMEs?

In the next decade, it’s expected that energy prices could increase by 20% across Australia. This means that electricity costs for SMEs are likely to climb, affecting monthly energy bills and overall business expenses. 

It’s an avoidable reality that makes choosing between fixed vs variable electricity rates more important than ever. Fixed-rate plans offer stability and predictable costs, while variable-rate plans provide flexibility and the potential to save when energy prices fall.

The best energy plan for SMEs depends on what gives the most control. For some businesses, control means knowing exactly how much the cost of electricity per kWh will be for the next 12 to 36 months. For others, it means having the flexibility to move with the market and adjust when prices drop.

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