The Benefits of Fixed Vs. Variable Energy Rates: A Consumer’s Guide to Residential Power Consumption
Buying a house for the first time offers a newfound freedom where you get to transform four walls into a home. No more landlords, no more rent, and no more dirty looks from your roommate. You don’t have to ask permission to put a fire pit in the backyard, or have to consult with the property manager about painting your bedroom a new color every spring.
Let’s not forget that with the freedom of owning a house comes responsibility. All of a sudden, it’s your job to take care of everything, including yard work, appliance breakdowns and navigating through the endless utility bills.. How are you going to fully enjoy your newfound freedom without breaking the budget? Should you go green by installing solar panels? Is it better to work with your local utility company or to sign up with a third party energy supplier? What’s the better deal: fixed or variable energy rates? Who has the answers to help you decide all of this?
First, let’s take a step back and consider the fundamental debate of fixed versus variable power rates. What is the difference between them and why is there more than one way to buy energy for your home? Here’s a short guide we’ve developed to shed some light on your most pressing questions about home energy.
The Varying Costs of Energy Production
Energy bills are known to spark confusion amongst new homeowners. How in the world are some energy suppliers able to offer customers a fixed rate for their power? Why do utility companies on the other hand, charge unpredictable, fluctuating energy rates that make opening your utility bill a nerve-wracking event each month? It has to do with the way power is generated, distributed, and stored.
Power is generated for the regional grid from many different types of plants: nuclear, natural gas, oil, coal, wind, solar, hydroelectric, and even geothermal in some states like California. All plants that mass produce energy are connected to this regional grid, but each type of power costs a dramatically different amount of money to start, stop, and run. Depending on which type of power plant your electricity comes from, production costs will vary widely. Utility companies, in turn, charge consumers a rate based on their production cost. As the production cost varies, so does your energy bill.
Electricity moves close to the speed of light in a vacuum, which is faster than anything else in the universe. It’s so fast that it can move between almost any point A or point B on the planet seemingly instantaneously. The power needed to cool your freezer down after you opened it to pull out a quart of rocky road was produced almost the same moment your hand touched the carton. Since the power distribution grid does such a good job of sending electricity long distances, variable rates are often a question of who is producing that power at the moment to keep up with your demand.
The Impact of Energy Production Rates on Consumer Costs
Let’s back up for a moment in order to talk about the rate of power production. Nuclear and coal plants produce a lot of energy at a constant rate, but are difficult and costly to start up and stop when running. Ever try to put out a coal fire? Good luck. There are currently a few burning with the absence of oxygen in coal veins underground that were started over a hundred years ago—and have proven to be virtually impossible to put out. Nuclear energy is even more difficult to adjust. Radioactive material decays at a constant rate, producing a consistent amount of heat during the process of decay, turning water into steam. Steam-powered copper turbines then generate electricity. The only way to produce more steam, and thus more electricity, is to add more radioactive plutonium, which as you can imagine is not a simple process.
What does this mean for homeowners? If the grid were using a steady amount of power all the time, the demand could be handled cheaply and consistently by coal and nuclear power plants. The end consumer—you—would be paying about the same amount all the time for electricity. Instead, energy demand fluctuates across the U.S. by the week, the hour, and even the second. Nuclear and coal plants are almost always either making too much energy during low demand hours, or not enough during times of high demand, because the output of these plants can’t be easily adjusted.
That’s where intermittent and peaker plants come in. Instead of building up excess energy that must then be dissipated when it isn’t used, or subjecting the region to rolling blackouts, utilities augment nuclear and coal with energy from natural gas, oil, and hydroelectric plants. These peaker plants are much more expensive to operate, but much easier to start, stop, or ramp up. They can quickly and easily jump in to help out during peak demand hours, then go back offline when they’re not needed. It’s a tidy solution, but it’s impossible to escape the fact that the electricity they produce is generated at a higher cost. When the price of power production goes up, so does the energy rate for homeowners.
Third Party Energy Suppliers “Fix” Variable Rates
So, as a homeowner and energy consumer, do you just have to pay whatever the utility company decides the rate is at any particular moment? Well, in certain markets, like New York, Pennsylvania, and Texas, the legislature has permitted third party energy suppliers to step in and explore an innovative way to deliver power to the people. Instead of charging a variable rate, they’ve discovered a way to offer consumers a fixed rate on electricity, no matter when it’s used.
Third party energy suppliers, like Liberty Power, negotiate with power plants to buy a certain amount of electricity ahead of production for a fixed rate. Power plants are ensured a base level of demand and, more importantly, energy suppliers can offer consumers a stable electricity rate on their energy bill. If a homeowner uses the same amount of energy each month, their power bill won’t fluctuate, easing budget insecurity. With Liberty Power, the freedom to plan is back in your hands.
There are other benefits for consumers as well. Buying energy in bulk also allows Liberty Power, and therefore each homeowner, to choose how their home’s energy is produced. Environmentally-minded consumers can purchase Renewable Energy Credits, or RECs to offset a certain amount of their electricity usage, which is great for the environment! Each REC is produced by wind, solar, hydroelectric, or geothermal sources, ensuring revenue for eco-friendly energy companies so they can then reinvest into future renewable energy plants.
Liberty Power understands the joys, but also the uncertainties, that come with homeownership. We’re here to ease some of that instability, at least where your power bill is concerned. Get in touch to explore our fixed energy rates, and learn more about taking advantage of our renewable energy products.
Photo Credit: Valentina Locatelli