By Jordan Watts
Shopping for a new electricity plan can be a daunting and confusing process, especially with rates constantly fluctuating. However, energy deregulation has ensured that consumers have more options than ever before, allowing you to find cheap electricity plans and providers to meet the needs of your home or business.
While electricity prices are constantly changing based on a variety of factors, certain indicators can help you identify the best time to lock in a rate that works for you. Whether you’re hoping to secure a cheaper electricity bill or more flexible contract terms, in this article we’ve broken down everything you should consider when deciding when is the best time to shop for electricity.
While this is one of the most-asked questions we get from consumers, the unfortunate reality is that there is no one-size fits all answer. If you’re out of a contract, or will be in the next month, the best time to shop for electricity is right now. A contract rate for electricity is almost always cheaper than paying month-to-month variable rates. However, if you diligently shop and renew your contract, the answer is much more complicated.
Obviously the best time to lock-in rates is when electricity is at its cheapest, but it can be difficult to predict if costs will go up or down in the future. This is where seasonality and contract length come into play.
Historical advice has suggested that the best time to shop for electricity is in spring or late autumn, since temperatures are at their most mild during those times. As a result, demand for electricity and its cost decrease during these periods, leading to cheaper overall electricity rates. While this may be true, contract length also plays a large role in overall cost.
Remember, Retail Electricity Providers make offers and set plan rates based on the wholesale prices that they’re paying for electricity, which impacts the energy plans they offer. In Texas, this wholesale rate is largely impacted by the demand due to weather and the cost of electricity generation. This means that in the summertime electricity prices tend to spike due to the intense heat, but this varies largely depending on your geographic location.
While consumers are buying electricity at a fixed or “leveled” price, electricity providers are not. This means that they need to insure themselves against the potential of prices going up throughout your contract. To do this, many suppliers will adjust the electricity rates of varying contract durations based on what months they cover. For example, if you’re in Texas shopping for a 6 month contract in April, you’ll likely see higher rates than if you were shopping for a 6 month contract in November. This is because the latter covers summer months when electricity demand is high.
No matter when you shop for electricity, consumers will always carry the cost of electricity demand– it just may not be immediately visible in your plan. Many electricity providers offer energy plans that avoid or underweight summers to appear cheaper overall, including 3, 6, 9, and 18 month plans beginning in September. While these may appear to offer lower rates than a 12-month plan, this is largely because they mostly cover off-peak months.
Pro Tip: Generally, in Texas, it’s wise to look at plans that include winter months. Since these are off-peak months, you’ll likely see better rates and increased savings.
Ultimately the best time to shop for electricity depends on your budget and market trends. By reviewing historical trends for electricity rates, taking into account weather predictions for the upcoming months, and utilizing tools like our Rate Tracker to get notifications when rates are dropping, you should have a good idea about electricity pricing for the upcoming months. This will help you make a decision about how long to lock in a new contract for.
If you’re confident that electricity rates are coming down and will be at a better price point in the next few months, it may be wise to lock in a short contract for 3 to 6 months. On the other hand, if you’re worried about price spikes in the future you could benefit from securing a steady fixed-rate contract for 12, 24, or 36 months. Plus, if rates ever come down during these extended contracts you can work with a price comparison tool, like EnergyBot, to determine if it would be worthwhile to pay out early cancellation fees and switch your electricity provider.
Before you begin shopping for a new electricity plan, it’s important to understand the relationship between your electricity rates and your overall energy bill. While electricity and energy are often used interchangeably, energy is typically associated with all of your utility bills. On the other hand, electricity is, you guessed it, just focused just on your electric bill.
Your electricity bill is also made up of two components: costs that you can control and costs that you can’t. Not only can you make choices about efficiency and electricity consumption to alter your bill, you can also choose the best plan and provider for your home. By selecting an electricity provider in a deregulated market, you’re taking control of your electricity supply rate. However, consumers don’t have control over their utility companies–even in deregulated markets– meaning your electricity bill will also include utility charges, transmission, and delivery fees that are out of your control.
Either way, reducing the cost of electricity can significantly impact your bill at the end of the month. This means it’s critical to lock in the best electricity rate possible at the right time to help save money on your bill.
It’s important to remember that the cost of electricity is determined by a wide range of factors including your geographic location, the weather and future forecasts, current events, and more.
While it’s important to be able to compare rates immediately, understanding how these factors will influence electricity prices in the coming month can also help you better anticipate future trends in the market and identify when the best time to shop for electricity will be.
The price of electricity varies heavily depending on your state, and even depending on your location within a state. In states with a deregulated energy market, like Texas, electricity prices will likely be cheaper due to competition. At the same time, your proximity to a power plant may have an impact on your electricity bill due to delivery costs from your utility company. However, it is important to remember that this is not controlled by your Retail Electricity Provider (REP).
Increased demand for power or electricity will typically drive up the cost, due to greater pressure on the grid. Depending on where you live, this normally happens during whatever season you feel the most extreme temperatures in. For example, Texas summers tend to see an increased demand from the grid as people cool their homes with AC in the intense heat. However, it’s important to keep in mind that this cost is not only reflected in increased electricity rates, but also your bill.
Similarly, major natural disasters, such as hurricanes, snow, and more, can affect electricity prices massively. Not only will damage to power plants and utility distribution systems send the price of electricity skyrocketing, increased demand for electricity from consumers during these times can create a massive spike.
Similar to weather, future forecasts help electricity companies anticipate and prepare for future increases in demand from the grid. If weather predictions correlated with more electricity requirements, prices are likely to begin trending upward ahead of time. By understanding future forecasts, consumers can better decide when to lock in electricity rates.
Current and ongoing social and political events, such as presidential elections, environmental regulations, and war, can also have a major impact on electricity rates. For example, the recent political administration passed legislation like the CLEAN Future Act, which requires electricity supplies to be 80% carbon pollution free by 2030, and has caused an increase in cost of generation. On the other hand, many states are moving to deregulate energy to different degrees, leading to increased competition and better rates for consumers.
When shopping for electricity plans, you’ll see two main types of plans: fixed-rate and variable-rate.
Fixed-Rate Plans - Fixed-rate plans will have a set price per kilowatt-hour (kWh) for the term of the electricity contract. Regardless of weather, natural events, or market volatility, your rate will be “locked in” and stay the same. In most cases, fixed-rate plans have a term length of 6, 12, 24, or 36 months. We recommend fixed-rate plans for most customers as it provides stability.
By locking in a low rate with energy providers you can rest assured that your energy bill will avoid pricey fluctuations and remain predictable for the duration of your contract. This can be especially useful in protecting your bill if you think that the market is trending upward in terms of price. However, it can also leave you with a more expensive rate and potential early termination fees if you lock in as electricity rates are decreasing.
Variable-Rate Plans - Variable-rate plan electric rates are not locked in and therefore the cost per kilowatt-hour (kWh) may change on a monthly basis. In variable-rate plans your price per kWh is based on current market factors, including those previously mentioned.
Variable-rate plans offer more flexibility but present more volatility in pricing. Price changes may impact your monthly electricity bill in the form of price hikes. In most cases, we do not recommend variable-rate plans.
Generally speaking, a fixed-rate that is lower than the default utility price to compare, or aper kWh in your state, is a good deal for energy rates. However, the best rate for electricity is highly variable, depending on a number of factors, such as market conditions, your household or business electricity usage, how many locations your business has, and where you’re located. The best rate also depends on the person. Not only do your individual answers to the previous questions influence the best rate for you, so too does your risk tolerance.
Energy and electricity rates are constantly fluctuating, meaning that the rate you sign a contract for today could go up ordown tomorrow. If rates were to go down tomorrow you’d feel like you missed out, but if rates were to go up you’d feel like you got a good deal. So, how do you account for this when shopping for electricity? The answer is to focus on term length, rather than just price when shopping for electricity.
If you think that the energy market is at a low point and will likely be trending upwards in the next few months, it’s wise to buy a longer plan. On the other hand, if you think that things will be trending down in the near future, it might be wise to only lock in a short-term contract. Just make sure that whatever plan you choose fits within your budget.
No matter when you lock in your electricity rate, it’s wise to continue to periodically monitor prices to see if you could secure a better deal. Oftentimes getting a great rate has ore to do with one-off weather events than any particular season. If you do happen to come across a plan that looks like it might beat your current rate, even after early termination fees, EnergyBot can help you verify and switch seamlessly.
Plus, by comparing energy prices regularly, when your renewal comes due you’ll have a strong understanding of different plans and rates. Together, with EnergyBot’s Comparison Tool, this will help you make the best decision about your electric bill for your home or business.
.jpg)
.jpg)
