There are many different options available when choosing an electricity plan as a residential consumer. You can get free electricity on nights and weekends. You can choose a solar energy plan. You can choose a wind energy plan. You can even get football tickets with your electricity plan!
Retail electricity providers (REPs) regularly offer a creative mix of energy plans in the hopes of suiting your fancy, but for most people, it boils down to two paths: fixed-rate (i.e. the ones we offer at Chariot) and variable-rate plans. However, a third plan type became a trendy option in 2019: the wholesale electricity plan.
In this article, we’ll explain:
- What wholesale electricity is
- Why would someone choose a wholesale plan
- What other plans are available for customers
Demystifying the Wholesale Electricity Market
Let’s talk about wholesale electricity. First, you’re probably wondering what it even is. The wholesale energy market, in general, is a lot like shopping at Costco, except the customers are energy companies and the product being sold is large swaths of electricity. So, rather than buying a normal-sized bottle of ketchup at your local grocery store like you do, energy companies buy gigantic bottles of ketchup at cheaper, wholesale prices, and then repackage the electricity into smaller bundles for regular energy customers.
Hence, wholesale electricity often appears lower than the price of electricity because it depends upon market supply and demand at the exact time the electricity is purchased. However, you can’t guarantee those low prices all the time, which is why many people prefer the stability of a fixed-rate plane.
At its core, the wholesale market is a marketplace — not an energy plan. It’s the platform where high-dollar transactions are performed, and prices are updated every five minutes. If you’re a wholesale energy customer, your electricity rate fluctuates to whatever rate the market is in that five-minute increment. Yes, it can be cheaper, but it’s largely dependent on the aforementioned supply and demand for energy.
For example, in August 2019, the wholesale price of electricity peaked at $9/kWh. That’s 150 times more expensive than the average wholesale price of 6¢/kWh. That’s a lot of demand and a very steep price for residential electricity.
Let’s Talk About Wholesale Energy Plans
So, now that we better understand the wholesale market, it’s time to examine wholesale electricity plans. Let’s look to Costco again for this example: like the wholesale retailer, electricity providers who offer wholesale electricity plans typically charge a monthly or annual membership fee in order to access lower wholesale prices.
The twist is that, unlike Costco with its posted prices on large signs, you need to pay attention to the regular fluctuations in the supply and demand for electricity. The basics come directly from Economics 101:
- When supply is up and demand is down, electricity is cheap
- When supply is down and demand is up, prices are higher
Where things get tricky is when demand drastically outpaces supply the market, especially during the heat of the Texas summer we saw in 2019. With wholesale electricity, how much you pay for electricity at a given time can feel like a gamble. You win some, you lose some — and you have very little control over the supply or demand.
However, some people love the rush of tracking the price changes, as it can actually save homeowners lots of money — albeit if they react quickly to the market fluctuations. Many do so with the assistance of smart devices in their home that can be controlled remotely via their smartphones and, thus, turned off whenever the market spikes.
So, if you like the appeal of monitoring the market, shooting for the lowest possible energy bill out there, and being in maximum control, then wholesale energy might be the right fit for you. However, if you really don’t want to think about your electricity rate all day or don’t have smart home technology, a fixed- or variable-rate plan might be your best option.
Thus, it’s time to enter the realm of retail electricity, where all residential plans live, including wholesale electricity plans.
The Retail Electricity Market
Retail electricity markets exist where energy is deregulated, meaning you have the option to choose your energy company and how you get your energy. In this scenario, customers have the option to choose the electricity plan that best fits their needs. This ranges from a free nights and weekends plan to a renewable energy plan, an all-solar plan, or even a wholesale electricity plan.
As we mentioned above, the vast majority of plans offer either a fixed rate or a variable rate. Let’s explain what they are and the pros and cons of each.
Fixed Rate Plans
The most stable plan option out there, they’re just easy. These no muss, no fuss plans cushion you from seasonal price spikes by locking you into a rate for a specific period of time. This can be anywhere from three to 36 months or longer, so it truly depends on how long you want to be on a contract for that rate. If it’s a good rate, then you’ll want to lock it in for a long time.
The great thing about fixed rates is that retail electricity providers already have factored in the highs and lows of the market into an average price that is fair and secure. If electricity rates go up during the summer, fixed-rate customers benefit from having their rate locked in, so they can pay less than others.
However, fixed-rate customers may end up paying more than the market price of electricity if supply and demand on the wholesale market keep real-time prices low. It truly depends on what the rate is and how the energy company calculated it.
Variable Rate Plans
Now, let’s talk about variable-rate plans. They’re similar to wholesale rate plans in that the price depends on the electricity wholesale market. The difference is that variable rates don’t change every five minutes like wholesale rates can. Instead, rates change monthly, so they’re a bit more stable than wholesale rates but not as stable as a fixed-rate plan.
Like wholesale plans, variable-rate plans are contract-free, meaning you can switch energy providers or plans whenever you want without having to pay a fee to break a contract. Variable-rate plans are ideal if you’re watching the market for a cheaper rate or are in between long-term residences.
Thus, these plans are a bit more work, as you have to actively monitor your bill and determine if and when you should switch to a lower or more stable rate.
Which Electricity Plan Should You Choose?
Honestly, it depends on what you want out of your energy company. Those football tickets? Probably not the best plan out there, but if you want those tickets, then by all means, go get ’em!
But when it comes down to it, you want a plan that suits your lifestyle — and your budget! If you’re a planner who doesn’t like surprise bills, then go with a fixed-rate. If you’re an avid market watcher, then a variable rate or even a wholesale rate might be the way to go.
Our opinion, though? Clearly, as a provider of fixed-rate plans, we absolutely prefer the stability of an affordable fixed rate. Our products are easy, affordable and solar.
But at the end of the day, it’s your choice. That’s the beauty of energy deregulation.