Types of Electricity Plans: Fixed, Variable, and Indexed

Choosing the electricity plan type is just one of many choices you’ll have when choosing your new electricity plan. There are fixed, variable and indexed electricity plans. It can be confusing to sort through the different options available, especially if you’ve never bought an electricity plan before.

Take a breath, because finding the perfect plan rate type for your family or small business is a lot easier than it looks. We’ll walk you through what you need to know about electricity pricing. And we’ll call out things that are different in Texas, the biggest deregulated electricity market in the U.S.A.

Types Of Electricity Plans

Here are the main types of electricity plans, defined:

Fixed Rate Electricity Plan: A fixed rate electricity plan charges the same rate per kWh of electricity for the term of your agreement. The price is the same no matter how much electricity you use. The only way your price will change is if there are changes in the delivery fees.
Variable Rate Electricity Plan: A variable rate electricity plan is a month-to-month electricity plan. Your rate can change every month. Your provider is required to publish the next month’s rate to give you notice of what rate you’ll pay.
Indexed Rate Electricity Plan: An indexed rate electricity plan is similar to a variable rate plan, in that your price will change on a regular basis. The difference between a variable rate plan and an indexed rate electricity plan is the formula. Indexed rate electricity plans are tied to a published market price, like the cost of natural gas.
These definitions are consistent across all deregulated electricity markets.

Within Texas, there are a lot of types of electricity plans.

Within Fixed Rates, you will also find electricity plans with tiered rates and bill credits, where your average price per kWh will vary with your usage. You’ll still find them on our site, but below we’ll tell you how to identify a good deal or not. You can also choose from Green Energy fixed rate plans.

The Public Utility Commission of Texas categorizes Free Nights and Weekends Electricity Plans as a fixed rate.

And if you have bad credit, you can get a prepaid electricity month to month plan with a variable rate or for 12 months on a fixed rate.

Fixed Rate Electricity Plans – No Gimmicks

Fixed-rate electricity plans are the most popular option with electricity customers. These types of plans give you a fixed rate for electricity, no matter what happens in the electricity market.

When prices rise for other electricity customers, a fixed-rate electricity plan doesn’t budge. The price remains stable throughout the length of the contract. That’s the big benefit of fixed rate electricity vs. variable rate electricity.

On the flip side, fixed-rate electricity plans can also cost you a lot of money. What happens if you have entered into a long-term contract and electricity prices suddenly go down. Some long-term contracts can commit you for as long as three to five years.

Breaking the contract on one of these long term plans can be costly, depending in what state you are in. Some states limit the amount that retailers can charge for an early termination fee. But in Texas, you could pay a couple hundred dollars for early termination.

That’s why some electricity providers in Texas will pay for your early termination fee to get you to switch. For example, Rhythm will reimburse your ETF up to $150.

Fixed rate contracts for 6 or 12 months give you a short-term fixed rate option. A short term fixed rate contract could offer the lowest price. And sometime long term fixed rate contracts are cheaper. It all depends on market conditions.

We recommend fixed rate plans that are a set rate, without tiers or bill credits. In our years of evaluating electricity rates, these basic electricity offer the best value to the most consumers.

When you shop online with ElectricityPlans.com, you’ll find these plans described as “Basic Plans.” And you can opt to see only those plans by using the Advanced Search feature. Or use this link to find out more about Fixed Electricity Rate No Gimmicks (Basic Electricity plans in Texas).

Types of Fixed Rate Plans in Texas

Texas always has to be different. In addition to Basic Fixed Rate plans, here are the other types of Fixed Rate plans in Texas:

Tiered Rate Electricity Plans: Tiered rate electricity plans charge a different price per kWh depending on how much electricity you use during the month. These look like low prices but make sure you know your usage before you sign up. Search by tiered rate/bill credit plans using Advanced Search
Bill Credit Electricity Plans: Bill credit electricity plans give you a bill credit when you use a certain amount of electricity. Make sure you know your usage and how many times each month you will hit the required level. Search by tiered rate/bill credit plans using Advanced Search.
100% Renewable Green Energy Plans: Green energy plans let you contribute to a cleaner environment in Texas. Renewable Energy Certificates back these plans. That means you will support wind and power resources.
Electricity Plans with Free Stuff: Some retail electricity providers will include a free gadget with your electricity plan. Examples include a Google Hub or a free Nest smart thermostat. These plans are usually priced at a higher rate to cover the cost of the free item.
Want to learn more about shopping for electricity in Texas? We thought you might. That’s why we wrote The Definitive Guide to Shopping for Electricity in Texas. In 10 minutes you’ll know everything there is to know.

Variable Electricity Rates – Keep Your Options Open

Variable-rate electricity plans change in cost from month to month, based largely on the cost of wholesale electricity.

Variable rate electricity plans are a great option if you’re not ready to commit to a long-term plan. Or if fixed rate plans are too expensive at that moment (which usually happens in August.) Since most variable-rate plans are month to month, there won’t be a cancellation fee. You can jump ship whenever you choose.

On the downside, variable-rate plans offer absolutely no protections from fluctuations in the cost of electricity. This means you’ll want to carefully research this option. Most suppliers show the historical pricing of their variable-rate plans somewhere on their website. Beware of variable-rate plans in August, especially in the south. These plans can jump 30% or more for this one month.

Variable rate electricity plans are perfect if you’re in temporary housing or have rental properties. Or, they’re a good stop-gap measure if you want to wait out the summer market. You can go month to month, then lock in a cheaper fixed-rate plan when rates drop. However, the price fluctuation can make these dangerous for customers who can’t absorb a large, sudden increase in electricity costs.

Indexed Electricity Rates – Time Of Use

An indexed electricity rate simply means that the price of your electricity is tied to another underlying variable.

For some electricity providers, this underlying variable is the price of a publicly available index. One example is the monthly closing price of the NYMEX natural gas futures contract.

The underlying variable that your electricity provider uses to calculate your bill must be fully disclosed in your contract. The electricity rates for indexed electricity plans can vary month to month like variable-rate plans. Or the indexed rate may be fixed for the length of your contract based on the closing price of a certain index on a certain date.

As of July 2021, residential consumers and small businesses no longer have the option of buying an indexed plan that is tied to a commodity.

In Texas, electricity suppliers previously labeled time of use plans as indexed plans.

The Texas free nights and weekends electricity plans is a time of use plan. You get free electricity at certain times as defined by the contract that you sign with your electricity provider. These type of plans also require a smart meter. That lets your electricity provider accurately measure the amount of electricity that you use during your “free” time.

Are you willing and able to shift a large portion of your electricity usage to the measured free period? If so, this type of plan might save your money.

Indexed plans are interesting but can be challenging. Because they require a fair amount of monitoring on the customer’s part in order to ensure any savings.

Take a chance on these plans if you’re looking for a deal and you don’t mind policing yourself.

Is Fixed Rate or Variable Electricity Rate Electricity Plan Better?

There is no perfect electricity rate type for everyone.

If you’re not sure what type to choose, a variable-rate plan on a month to month contract is probably your best bet. This gives you time to decide if you like the provider you’re working with. You can watch rates to figure out when the best time is to leap into a longer term fixed-rate plan.

If you aren’t the type who likes to gamble or you’d prefer to just buy a plan and forget it, the fixed-rate plans are perfect for you. This is what most consumers buy. There’s a lot of security with them. You know exactly how much you’ll pay per kWh. You’ll save yourself from having to monitor your electricity rate all the time. Fixed rates are our top recommendation for best type of electricity plan.

What’s a Flat-Rate Electricity Plan?

A flat rate electricity plan charges a set amount of electricity per month, no matter how much power you use. This is similar to an average billing approach.

Make sure you read the find print on any flat rate electricity plans. Most of them will give you a certain fixed price per month, up to a certain usage level. Any usage over that is more expensive per kWh.

When you are shopping for a flat-rate electricity plan, make sure you understand your electricity usage. If you use less than the targeted usage level, your price per kWh will be higher than what you want to pay. But, if budget certainty is what you are looking for, these could be a good option.

 

 

 

 

Compare energy

 

TIME TO SWITCH UP YOUR ENERGY BILLS

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You could save on your energy bills by switching to a new tariff
Compare the latest prices from energy suppliers
Enjoy fantastic rewards when you switch through us*
Why are energy prices so high?

The rapid rise in energy prices through 2022 was driven by a host of factors, including soaring inflation, a shortage in supply and rising demand after the pandemic. While prices have fallen since their peak in the summer of 2022, prices have remained high when compared to pre-pandemic levels.

However, the Energy Price Cap set by Ofgem and the government’s Energy Price Guarantee, introduced in October 2022, prevented energy suppliers from raising prices past a certain point

The Energy Price Guarantee now no longer applies to households without a prepayment meter. But the current Energy Price Cap, which runs from January 2024 to March 2024, is set at £1,928 per year for a typical household:

On a dual fuel tariff
Paying for their energy by direct debit.
However, this doesn’t mean this is the maximum you’ll pay. The cap limits the energy prices suppliers can charge for units of gas and electricity. The size of your bill depends on how much energy you use, where you live and how you pay.

If you use more than the average household, you’ll pay more than the price cap.

From 1 April 2024, the new Ofgem energy price cap will take effect. This will cap energy prices for a typical usage household at:

£1,690 for those paying by direct debit.
£1,643 for those with a pre-payment meter.
£1,796 for those who pay their bills every three months by cash or cheque.
Helpful articles

What to do if you can’t afford your energy bills
Help with energy bills: available grants and schemes
The energy price cap explained
A guide to prepayment meters
Energy tariffs explained
When will energy prices go down?

Energy prices have already started falling since their peak in the summer of 2022, with the Energy Price Cap lower than the Energy Price Guarantee. So, you should be paying less for your energy bills.

Ofgem have recently announced their new energy price cap, which is due to take effect from 1 April. This sees a typical usage household pay no more than £1,690 per year, when paying by direct debit. This is £238 cheaper than the previous cap and the lowest it’s been since early 2022. However, this is still significantly higher than pre-pandemic levels.
How is the Energy Price Guarantee applied?

If you don’t have a prepayment meter, you’ll no longer get an Energy Price Guarantee discount.

From 1 October 2023, customers on pre-payment meters will get a discount on gas standing charges. The discount will be applied automatically – you don’t have to use vouchers or contact your energy supplier. The rate you get will vary depending on where you live.

The scheme doesn’t apply to Northern Ireland.
Can I switch to a better deal?

Suppliers have started to launch new fixed tariffs, but energy prices remain high. At Compare the Market, we’re dedicated to help you find the right deal for you. Compare today to see if you could find a better energy tariff.
How to save on your energy bills in the home

We’ve put together some of our best energy tips for keeping gas and electric costs down.
Energy saving tips
Which appliances use the most energy?
Energy troubleshooting guide
Is it more efficient to use a dishwasher than handwash?
A guide to smart thermostats

 

How do I compare energy prices?

There aren’t many deals that are cheaper than the Energy Price Cap, so switching may not save you money right now. But new deals are coming onto the market, so we’ll soon be here to help you find cheap energy deals again.

Sign up to our switch alerts to know when new deals become available.

Here’s a reminder of how switching works:

How do I switch energy suppliers?

When switching is possible again through Compare the Market, all you’ll need to get started is a recent energy bill.

We’ll need to know:

The name of your current supplier and tariff name
How much energy you use (in kWh or pounds).
How do I know which supplier is right for me?

There are a few things to consider when deciding whether a supplier is right for you:

Is the deal they’re offering below the Energy Price Cap?
Do you want to switch to a fixed rate deal, given the uncertainty about future prices?
Does the provider have a good reputation for customer service?
How long will it take to switch energy suppliers?

It should take no longer than five working days to switch energy suppliers under the Energy Switch Guarantee.

What happens when I switch?

Your gas and electricity supply will carry on as normal when you switch energy suppliers. The only thing that changes is where your bills come from.

What if I change my mind about switching?

You’ll have a 14-day cooling-off period starting from when you agree your new contract. You can cancel without a penalty during this time.

Find out how easy it is to switch energy suppliers in our full guide.

 

 

What support is available if I’m struggling with my energy bills?

All energy suppliers must have plans in place to help customers who can’t afford to pay their bills. Ofgem rules mean suppliers must offer payment plans you can afford, and you can ask for ‘emergency credit’ if you use a prepay meter and can’t top up. If you’re having difficulties, it’s best to contact your energy supplier as soon as possible.

If you’re having difficulties, contact your energy supplier as soon as possible.

See our guide on what to do if you can’t afford your energy bills.

The government is continuing to offer a package of support measures to help households with rising energy bills and the cost of living. This runs through to spring 2024. See all the available government support to help with the cost of living.

You should also check that you’re receiving the best energy benefits you’re entitled to, including the Winter Fuel Payment and Warm Home Discount.
Why switch gas and electricity providers?

There are several reasons to compare gas and electric and consider switching your supplier:
Price tag icon
Getting a better deal

Carrying out an energy price comparison and evaluating suppliers each year can potentially save you hundreds on the cost of your gas and electricity. Compare the Market is constantly monitoring the energy market to ensure you can get a deal that’s right for you.
service icon
Better service

You may be unhappy with the service provided by your supplier. Switching to a supplier with better customer service could fix this.
Greener energy icon
Greener energy

You might want a supplier that uses more renewable energy.
Enjoy fantastic rewards, on us*
Can I save money by switching energy suppliers?

Looking for the cheapest energy supplier and regularly switching is usually one of the best ways to save on your energy bills. But the energy market is highly volatile at the moment, so it may not be a good idea to switch right now.

Compare the Market will help you with your energy comparisons again as soon as we can.
Which tariff is best for me?

It depends on what you want from an energy deal and your financial situation. There are several types of energy tariffs:

Dual fuel – getting gas and electricity from the same supplier can be the cheapest option. It also means you’ll only have one bill to deal with.
Green energy – If you want to reduce your carbon footprint, you can look at energy suppliers who specialise in wind, solar or other renewable sources to offset their carbon usage.
Variable tariff – these tariffs fluctuate according to the market. So if prices go up, you’ll pay more. If they fall, you’ll save.
Fixed rate tariff – these tariffs can make budgeting easier as the unit price of energy is fixed for a set period of time.
Prepayment energy tariff – as the name suggests, you have to pay in advance for your energy with a prepayment tariff.
Economy 7 tariff – an Economy 7 tariff can give you a cheaper rate for electricity during ‘off-peak’ hours, usually at night.
Can I compare gas and electricity quotes separately?

You can compare gas and electricity quotes separately or together. While dual fuel is a popular way to keep your energy bundled together, you can also get gas and electricity from different providers.

 

Frequently asked questions

How often do energy prices change?
Energy prices change all the time. They reflect market supply and demand, and fluctuate as a result. They’re also affected when wholesale costs change.

The current Ofgem Energy Price Cap is set every three months, reflecting inflation as well as underlying costs of energy. It caps the unit price of gas and electricity for a typical household with a dual-fuel tariff paying by direct debit. But the amount you pay altogether will still depend on how much energy you use.

What’s the cheapest way to pay for gas and electricity?
The cheapest way to pay your gas and electric bill is usually via direct debit.

Where can I get the cheapest gas and electric?
Shopping around for the cheapest deal can often be the best way to save on gas and electricity. However, there aren’t many deals available to switch to at the moment.

But with wholesale energy prices falling, this is expected to change. This could signal a return of competition in the energy market and a cheapest energy supplier or tariff returning.

What is the difference between fixed and variable-rate tariffs?
Fixed-rate tariffs – the unit cost is fixed and will stay the same for an agreed length of time.

Variable tariffs – the unit cost can go up or down in line with changes in the wholesale energy market.

Find out more in our types of energy tariffs guide.

Is it easier to switch gas and electricity together?
Switching dual fuel or switching one energy type on its own are both simple when you use Compare the Market. The only potential complication would be if you are on a fixed-term contract that hasn’t yet expired, as you may have to pay an exit penalty.

When switching is possible again, it will help if you have both your latest gas and electricity bill to hand, because the answers to the questions we’ll ask you will be there. If you don’t have a bill, then don’t worry, we’ll be able to compare energy prices based on estimations.

Can I switch energy supplier if I owe money?
If you have bills that are more than 28 days old, you might find that you can’t change energy supplier until you’ve paid them. But there are some exceptions.

For example, if you’re on a prepayment meter and you have debts of up to £500 on gas and £500 on electricity. The energy supplier you switch to will take on the debt and you will repay them instead.

I’m moving home. How can I switch gas and electricity?
If you’re moving and your existing deal is a good one, it can be carried over to your new home – just tell your energy supplier the new address and the moving-in date.

On moving day, take a meter reading before you leave and give this to your supplier. This way you can be sure your final bill will only reflect what you’ve used.

Be sure to also take a meter reading at your new home so you won’t be paying for energy used by the previous owner.

See more on moving home and changing your gas or electricity suppliers.

Can I switch energy provider if I rent?
Tenants can switch energy providers if they pay the supplier directly for their gas and electricity.

If your landlord pays your energy bills then charges you, choosing the energy supplier is up to them, although you can always ask them to change to get cheaper gas and electricity.

Can I get a smart meter if I switch gas and electricity?
It depends on what stage your gas and electricity supplier is at in their smart meter programme. The rollout is being managed by individual energy companies. You can ask your current energy supplier for a smart meter and they will let you know if it is possible to get one and when.

Make sure any tariff you switch to is the best energy deal for you –in the past there have been some beneficial tariffs for smart meter users.

See more about how smart meters work in our guide to smart meters.

How can I find a green energy supplier?
When you can compare with us again, you’ll be able to choose to see tariffs for 100% renewable electricity.

See more on renewable energy.

 

 

 

 

A simples guide to energy

What is a collective, and what is it for?

In the context of energy, a collective is a tariff from a supplier only available exclusively to a specific group of customers. This doesn’t mean an informal group, like friends or neighbours – it’s more organised than that. In the past, collectives have been arranged by councils, national newspapers and, of course, comparison sites for their customers. It’s often referred to as collective energy switching.

The idea behind collective energy switching is simple – a group has more bargaining power than an individual, so groups of consumers should be able to negotiate better deals than individuals can. Forming a group allows the organisers to take the large number of customers ready to switch to a supplier and ask to get a special tariff for that group. This type of negotiating is also known as collective purchasing.

Collectives are generally available for a limited time or restricted to a limited quantity (depending on the terms agreed between the organiser and the supplier). As they’re sourced for a specific group of customers, they’re usually not available elsewhere.

How do collectives buy energy more cheaply?

With collective purchasing, the organisation that arranged the group of consumers (like our energy experts at Compare the Market) use the purchasing power of the group to negotiate harder with gas and electricity suppliers. If a supplier has the opportunity to secure large numbers of new customers quickly, they’re far more likely to put their best deals forward and they save money on advertising and marketing costs.
How popular are collective energy switches?

Collective purchasing schemes were popular in 2012 following endorsement by the Government, which also ran its own scheme in October of that year. However, many of the schemes didn’t attract the participation organisers had hoped for. But with energy prices back in the news, there’s been renewed interest in such schemes.

In fact, in 2018 the Government began a new trial of collectives with 50,000 consumers, aiming to get people engaged and make the energy market fairer for everyone.
Does Compare the Market offer collective energy tariffs?

Yes. Over the past few years we’ve secured several successful collective energy tariffs exclusively for consumers switching through Compare the Market. These collectives have seen consumers buying new tariffs and switching their gas and electricity in their thousands. To make sure our best deals are for our loyal customers, only people who have previously bought or quoted for any product through Compare the Market are eligible for collective tariffs.
How do you switch to a collective?

If you complete a quote with us, you’ll see a list of tariffs that are available to you to pick from. If we have a collective offer available, you won’t have to do anything different, it’ll just show up in your results. Then if you’re interested, you can switch to it just like any other tariff – it’s as simple as that!

 

 

 

 

 

What is an energy tariff?

An energy tariff is how an energy provider charges a customer for their gas and electricity use. The two main types of tariff are fixed rate and variable. A fixed rate tariff sets the cost of energy for a certain amount of time, typically one year or more, while prices on a variable tariff can go up or down according to the market.

Why is my energy tariff so high?

The cost of gas and electricity has risen dramatically in the last few years. When it costs more for suppliers to buy their energy, these costs are passed on to customers like you. And although prices are coming down from their peak in the summer of 2022, they haven’t fallen to previous levels. Predictions are that pre-crisis level bills are unlikely for some time.

If you’re on a variable tariff, you will have seen a big rise in your energy bills. This is because your supplier can adjust your price per unit (kWh) as the market changes. If you’re on a fixed tariff, your price (per unit) will remain the same until your tariff ends. Once it does, you’ll likely be paying far more for your energy.

 

 

 

You can compare energy deals with Compare the Market to see if there’s a better tariff out there for you. And there are still things you can do to help cut the cost of your energy bills. See our guide to energy saving tips, and find out what help is available if you can’t pay your energy bills.

What about the energy price cap?

The energy price cap, set by energy regulator Ofgem, puts a limit on the amount energy suppliers can charge their customers per kWh for gas and electricity.

Under the current price cap, from 1 January until 31 March 2024, the average household should pay £1,928 for fuel based on a typical bill paid by direct debit. But remember this is based on your usage, so if you use more, you’ll pay more.

Ofgem have announced that, from 1 April 2024, the energy price cap will fall to £1,690 per year for a typical usage household paying by direct debit. This is £238 cheaper than the previous cap and the lowest it’s been since early 2022. However, this is still significantly higher than pre-pandemic levels.

For those with a pre-payment meter, the cap will fall to £1,643, while those who pay their bills every three months by cash or cheque will be capped at £1,796.

Find out more about how the energy price cap works.

A new price guarantee for business energy began in April 2023. See details of the new Energy Bills Discount Scheme (EBDS) for non-domestic customers on GOV.UK
What are the different types of energy tariffs?

Things are grim at the moment for many households, but once the energy market starts to recover, cheaper deals should become available again. Meanwhile, we’ll help you get to grips with the different types of tariffs, so you’ll know what to look for when it’s time to switch.

 

 

 

 

 

 

 

Which energy tariff is right for you?

Choosing the most suitable energy tariff for you depends very much on your situation, living habits and personal preference. And while price is always a major deciding factor, there are other things to consider.

Here’s a quick rundown of which tariffs could be a good option for you:

Fixed rate tariff – if you want the certainty of knowing how much your unit cost will be for a set period and are happy to stick with your contract until it ends.
Variable rate tariff – if you like the freedom and flexibility of switching whenever you want, and don’t want to be tied into a contract.
Capped tariff – if you like a certain amount of stability, but still want to benefit if market energy costs go down.
Unlimited energy tariff – if you’re on a fixed budget and want the assurance of knowing the cost, no matter how much energy you use.
Dual fuel tariff – if you want the convenience of one bill and dealing with just one supplier for both your gas and electricity.
Pre-payment tariff – if you’re struggling with bills and debts and want more control over your energy spending.
Online tariff – if you prefer to handle your energy account from your computer, tablet, or smartphone, and want to reduce the clutter of paper bills.
Green tariff – if you want to help the environment and reduce carbon emissions by getting your energy from renewable sources and eco-aware suppliers.
Economy 7, 10 or time-of-use tariff – if you use more energy at night or at certain times of the day and will benefit more from ‘off-peak’ hours.
What happens to my energy tariff if my energy supplier goes bust?

Firstly, don’t panic. Energy regulator Ofgem has put a safety net in place to protect you. You don’t need to worry about your energy supply being cut off, because it will be transferred to a new supplier.

Ofgem will contact you to provide details of your new supplier and when the switch is made. You may want to take a meter reading at this time, because you’ll probably need it when your new energy supplier gets in touch.

Just be aware, you don’t get a say in which provider you’ll be transferred to, as all customers will be moved to a new supplier together. Unfortunately, you won’t get to choose which tariff you’re on either. When you switch to a new supplier, you’ll be put on a new contract known as a deemed contract. This will be your new supplier’s default tariff, which might be more expensive than your old tariff.

You can find out more details about what happens if your energy supplier goes bust.
Advice for people looking to switch energy providers

If your energy supplier has gone bust, Ofgem recommends not switching until you’ve been successfully moved onto your new supplier’s deemed contract, as it could complicate the process. The upside of a deemed contract means you can leave at any time, so once you’re ready to switch you won’t be charged a penalty or exit fee.