If you live in Alberta, you can choose between a fixed-rate or floating-rate energy plan. But figuring out which is right for your household can feel a bit overwhelming. Should you lock in a set price for your natural gas or electricity, or let your rate fluctuate with the market?
Let’s explore the pros and cons of locking in your energy rate so you can make the best decision for your home.
What’s a Fixed Rate, Anyway?
A fixed-rate energy plan means you lock in a price per kilowatt-hour (kWh) of electricity or gigajoule (GJ) of natural gas for a set period. This gives you consistency, as your rate stays the same no matter what happens in the market.
In contrast, a floating-rate plan changes month-to-month based on market prices. Both options have benefits, so let’s break down what might work best for you.
Note that fixed rates only lock in the “energy charge” on your bill. On average, this accounts for roughly 25% of your total electricity bill and 33% of your total natural gas bill. Some charges can’t be fixed (like delivery charges) and your total costs will fluctuate based on usage.
The Pros of Locking in a Fixed Rate
1. Better for your budget
The biggest perk of a fixed rate is improved stability. You know exactly what you’ll pay for every kWh or GJ related to your “energy charge.” This stability acts like a price ceiling per unit of energy, which can make budgeting simpler (as long as you’re watching your consumption).
2. Opportunities to bundle and save
From time to time, some retailers offer discounted rates if you bundle both natural gas and electricity under a fixed plan. This can simplify your bills and potentially save you money.
3. You’re not locked out of switching
Here’s something many people don’t realize: most fixed-rate contracts in Alberta offer flexibility. You can change your plan if market prices drop, usually without penalties. While not many people take advantage of this, it’s good to know you have options if rates shift.
4. Shielding from price spikes
Price spikes can happen unexpectedly and locking in your energy rates can partially shield you from some of these unexpected spikes (especially if you lock in for three or five years).
Take a look at how energy prices have fluctuated over the last decade vs. the current range of fixed rates offered by major Albertan retailers:
*Note that the purple bar reflects fixed rates as of July 2024. It does not represent the fixed rates available each year. During periods when natural gas and electricity rates were significantly below today’s fixed rates, available fixed rates were sometimes lower as well.
Alberta’s government has historically intervened during times of high energy prices. For example, from July 2022 to April 2023, the government provided $500 in rebates and capped electricity prices. However, there’s no guarantee that these kinds of measures will happen in the future. Locking into a favourable rate can ensure that you’re not overly reliant on government rebates.
The Cons of Locking in a Fixed Rate
1. Missing out on lower rates
If market prices fall while you’re locked into a contract, you could end up paying more than if you were on a floating plan. Sure, you can switch if you’re paying attention to the market, but if you prefer to “set it and forget it,” you might miss these dips.
2. Higher seasonal costs
While price spikes in Alberta are usually the result of shifting market dynamics, seasonality can sometimes play a role in energy prices. Fixed rates tend to be more expensive during the summer when energy demand is lower. With a fixed contract, you smooth out your costs — paying slightly more in the summer and slightly less in the winter.
3. Requires an eye on the market
One drawback of locking in your energy rate is that you need to closely monitor the market. If rates drop after you’ve locked in at a higher rate, you could miss out on potential savings unless you’re actively keeping track of market trends. Available plans also change over time and may actually become cheaper if you lock in when rates are high. Failing to stay informed might result in paying more than necessary when lower rates become available.
4. Accessibility and availability issues
Not everyone qualifies for a fixed-rate plan. Some customers with lower credit scores might face hurdles like deposit requirements or limited options.
Should You Lock In a Fixed Rate?
It depends on your risk tolerance and how involved you want to be in monitoring energy prices. If you value some measure of stability and don’t follow every market development, a fixed-rate plan could be the way to go. On the other hand, if you’re comfortable riding the ups and downs of the market and enjoy the possibility of saving when prices drop, a floating rate might suit you better.
Hopefully, these pros and cons have made the choice a little clearer.
If your top priority is cost savings, our top advice is to monitor the market (even if you lock in!). Remember that fixed rates may change over time and your energy bill is influenced by more than just your rate. Jotson provides a holistic view of your energy consumption and costs and tells you when you’re paying significantly above market rates so you can make smarter decisions.
