Value of a Fixed Energy Rate | Secure Rates

Published: February 3, 2018

There are many advantages in choosing a third-party supplier for natural gas or electricity supply. One of which is the ability to manage risk and potentially reduce costs by choosing a short or long-term fixed rate plan to suit the needs of a business and market conditions. A fixed electricity or natural gas price allows customers peace of mind knowing that their energy rate is set for a period of time (term).

 

For customers where a fixed rate makes sense, this type of pricing program has more pros than cons. First, a true fixed rate program is only offered with a third party supplier and not the utility, where there are limitations. Second, having a fixed rate allows predictability – given the supply rate will remain the same regardless of market volatility. If you are risk adverse and prefer an expected budget, a fixed energy price may the best choice for you and your business.

 

Although some utilities do offer short-term fixed pricing, it varies by utility and rate class. Many utilities change their rates differently – they can change daily, monthly, quarterly, semi-annually or annually with choice from the consumer. With a third party supplier your supply rate can be secured for longer terms. Imagine locking in the same rate for 3 years!

 

Market conditions, including seasonality, increase (or decrease) in demand, generation plants being on or offline, and weather can have a significant impact on energy rates.

 

As energy advisors, Diversegy is constantly examining the factors that may affect prices 2-months through 3 years+ out. These often vary market to market, but there are influencers that can have impacts across all markets. Weather predictions can be the most obvious influence in prices, driving both increased demand and availability. But other factors include nuclear, coal, and natural gas (reliable generation) going offline; as well as renewable energy sources like wind and solar (unreliable generation). While renewable energy sources can often drive down prices due to supply – it increases the cost of producing reliable generation such as coal or natural gas. The export of energy resources is a new, but increasingly important, driver in the cost of energy. While this will likely not have short-term impacts, we do foresee it influencing pricing in 2019 and beyond. A fixed rate contract hedges against these influences and potential market fluctuations, providing price and budget security.

 

Based on your market, past usage history, risk tolerance, and future plans for energy efficiencies or renewable resources like solar, Diversegy will provide a custom recommendation and potential short or long-term fixed rate contracts. Often done in 6-month increments, contracts typically start at 6 months and stretch as far as 4 years. Contracts can also have a forward start, allowing consumers to take advantage of lows in the market to secure rates 6 months to a year+ prior to their current energy supply contract expiration date.

 

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