Different types of energy plans explained

With countless energy plans available, choosing the right one for your household can feel overwhelming. It's essential to have a clear understanding of the options at your disposal to make an informed decision.

Energy plans in Australia come with various elements to consider, such as contracts, tariffs, fees, and additional charges. When carefully combined, these factors can help you secure the best deal tailored to your household's needs.

This guide will break down the key details of energy plans in Australia, helping you navigate the complexities and find the option that offers the most value for your specific energy usage. Whether you're looking for flexibility, cost savings, or simplicity, we'll explore the options that may best suit your household.

What kinds of energy plans are on the market?

When it comes to energy plans, customers in Australia generally have two main options: market offers and standard contracts.

Understanding the differences between these can help you make a more informed decision about which plan suits your needs.

Market offers

A market offer is a type of energy plan provided by retailers that typically includes incentives to attract customers. These incentives can come in the form of bill credits, discounts, or rewards programs, and they are offered for a specific timeframe known as the ‘benefit period.’

This period usually lasts 12 or 24 months, depending on the plan. One thing to be aware of is that the base rates for market offers are set by the retailer, meaning that prices can change once the benefit period ends.

While the initial discounts or bonuses can provide good savings, it's important to review your plan once the benefit period expires to avoid any unexpected price hikes.

Standard contracts

Standard contracts, also called ‘standing offers,’ are government-regulated energy plans. These are typically for customers who have never switched energy providers or haven’t changed their plan in a while.

Standard contracts tend to have fewer perks compared to market offers—there are no discounts or rewards, and they often come with higher rates. However, they are generally more stable because the pricing is less subject to frequent changes. In some regions, these are referred to as the Default Market Offer (DMO), while in Victoria, it's called the Victorian Default Offer (VDO).

According to the Australian Energy Regulator (AER), most Australians are on market offers, with only about 10% of households still using standard contracts. This shift is largely due to the competitive prices and added incentives that market offers provide, making them more appealing for cost-conscious consumers.

However, it's essential to regularly review your plan to ensure you're still getting the best value, especially when your benefit period ends.

Fixed vs variable rate contracts: What’s the difference?

Energy plans generally come with two types of base rates: fixed or variable. Each option has its pros and cons, and understanding how they work can help you choose the right plan for your needs.

Fixed rate plans

In a fixed rate plan, the energy rates are locked in for a specific period, often referred to as the ‘benefit period.’ This period can last anywhere from 12 to 24 months, depending on the plan. Fixed rate plans are ideal for customers who prefer predictability and don't want to worry about changes in their energy bills.

You can "set and forget," knowing that your rates will stay the same throughout the benefit period. However, it’s important to note that once this period ends, your rates may adjust, usually to a higher variable rate, unless you switch to a new plan.

Variable rate plans

On the other hand, variable rate plans offer more flexibility but come with some uncertainty. With these plans, the rates can change at any time, based on the retailer’s discretion or shifts in the energy market.

Variable rates are often initially cheaper than fixed rates, making them an attractive option for customers looking for lower upfront costs. However, the downside is that you'll need to keep an eye on energy prices, as they can fluctuate, sometimes resulting in unexpected increases to your bills.

While both options have their advantages, fixed rate plans are great for those who value stability and want to lock in their rates for peace of mind, while variable rate plans may be better for those willing to take the risk of price changes in exchange for potential savings.

It’s crucial to weigh these factors before deciding which plan works best for your household budget and energy usage.

How do energy tariffs work?

An energy tariff is different from an energy plan. While an energy plan outlines the contract terms and conditions, an energy tariff refers to how you're charged for the electricity or gas you use.

Tariffs determine the pricing structure, and there are several types to choose from depending on your household’s energy needs and usage patterns. Here’s an easy-to-understand overview of the four most common energy tariffs available:

Single rate tariff

A single rate tariff means you pay the same price for electricity throughout the day, regardless of the time you use it. There are no peak or off-peak periods, making this option straightforward and ideal for households that prefer not to manage their energy use based on the time of day.

With a single rate tariff, you’ll always know what you’re paying for energy, which makes budgeting easier.

Time of use tariff

A time of use tariff charges different rates depending on when you use electricity, but you'll need a smart meter to access this option. The day is divided into three periods:

• Peak: The most expensive time, typically when demand for electricity is high (such as in the evening).
• Off-Peak: The cheapest time, usually during late night or early morning hours when demand is low.
• Shoulder: A middle-ground rate, more affordable than peak but not as low as off-peak, typically in between these periods.

Time periods vary by provider and location, so it's worth checking specific times for your area. Households that can shift energy usage to off-peak or shoulder times may benefit from this type of tariff by lowering their bills.

Controlled load tariff

A controlled load tariff applies to certain large appliances that are metered separately, such as hot water systems or pool pumps. These appliances use energy during set times, usually off-peak periods, as determined by the energy distributor.

This tariff offers a lower rate for these specific appliances, which can help reduce costs for households with high energy usage from such devices.

Block rate tariff

Block rate tariffs, typically used for gas customers or businesses with high electricity consumption, charge you in blocks. The first block of energy you use is charged at one rate, and subsequent blocks are charged at a lower rate.

For example, the first 30 megajoules (MJ) might be billed at 3.5 cents per MJ, while the next 25 MJ might cost 3 cents per MJ. This tariff rewards higher energy usage with discounted rates for larger consumption.

Tariff availability and naming

Not all energy providers offer every type of tariff, and the options available to you may depend on your location. Additionally, different providers might use alternative names for tariffs.

For example, a single rate tariff may also be called a "flat rate," while a time of use tariff could be listed as "flexible pricing." To check which tariff you're on, simply refer to your energy bill, where it will usually be listed.

To learn more about different plan tariffs, our Aussie-based team at Compare Energy are happy to chat on 1300 790 106 today.

What costs could you face?

Every energy plan comes with its own set of fees, charges, and rates, which can vary depending on the provider. While it can sometimes feel overwhelming to navigate all the costs involved, the good news is that energy providers are required to outline these fees clearly in the energy fact sheets they provide.

These fact sheets give you a detailed breakdown of what you're paying for, making it easier to understand the total cost of your plan. Below are the most common fees and charges you should be aware of when reviewing your energy plan:

Exit fees

If you're on a contract and decide to leave before the agreement ends, some providers may charge an exit fee. This fee compensates the company for losing a customer before the contract period is complete.

Exit fees are less common these days, but it's still a good idea to check whether they apply to your plan, especially if you're considering switching providers.

Connection, disconnection, and reconnection fees

These fees cover the cost of setting up or disconnecting your energy service. If you're moving house or switching providers, you might be charged a connection or disconnection fee.

Similarly, if your service is temporarily cut off (due to non-payment, for example), a reconnection fee may apply to restore power.

Credit card surcharges

Some providers add a small surcharge for processing payments made by credit card. This fee is typically a percentage of your bill and may vary depending on the type of credit card you use.

If you prefer to pay by card, it's worth checking whether your provider charges this fee.

Paper billing fees

If you choose to receive paper bills through the mail instead of digital billing, some energy providers charge a fee for this service.

It may seem like a small charge, but over time it can add up, so opting for electronic billing can save you money.

Post Office payment surcharges

Some providers also apply a surcharge if you pay your bill at a post office. This is to cover the cost of processing these types of payments.

If this is your preferred payment method, it's good to be aware of this potential extra charge.

Direct debit processing and dishonour fees

While setting up direct debit payments can be convenient, some providers may charge a fee for processing these transactions.

If a scheduled payment fails due to insufficient funds, a dishonour fee may be applied, which can be an unexpected expense.

Late payment fees

If you miss the payment due date, you may incur a late payment fee. This is a penalty for not paying your bill on time and can be avoided by setting up reminders or scheduling automatic payments.

Monthly or annual membership fees

Some energy plans, especially those that come with added perks or rewards, may charge a monthly or annual membership fee.

These fees are often tied to plans that offer discounts, loyalty points, or other benefits. It's important to weigh whether the perks outweigh the added cost of the membership fee.

Can you move from one provider to the next?

Switching from one energy plan to another is generally a straightforward process, depending on the type of change you're looking to make. If you want to move between a market offer and a standing offer, the switch can often be done quickly and easily.

If you're staying with the same provider but want a better deal, all it usually takes is a call to your energy retailer to switch plans. Alternatively, if you're ready to switch providers for a better rate, you can sign up with the new retailer, and they will manage most of the process for you.

For electricity plans, switching to a new provider typically takes around two business days, but for natural gas plans, the transition can take up to 90 days due to the billing cycles involved.

However, changing energy tariffs can be a bit more complex, and this depends largely on the type of energy meter installed at your property. If you have a smart meter, the process is usually smoother.

Smart meters are compatible with a range of tariffs, including flexible pricing options, so switching tariffs could be as simple as notifying your provider. These meters can track your usage in real time and allow for easy adjustments to your billing structure.

On the other hand, if you have a traditional meter, switching tariffs may require additional steps. Traditional meters are not designed to handle complex pricing structures like time-of-use tariffs.

In this case, you might need to have a smart meter installed to access different pricing models or tariffs, which could involve additional costs and an installation appointment. While this may sound complicated, most energy retailers will guide you through the process and handle the arrangements if a meter upgrade is necessary.

Whether you're switching plans or changing tariffs, the key is to ensure that you're choosing an option that best suits your household's energy needs and usage patterns. Taking the time to review your options can lead to significant savings in the long run.

What are GreenPower plans?

Many energy providers offer customers the option to support clean energy initiatives by paying a bit more on their bills. One popular option is GreenPower, a government-backed program that allows Australians to contribute to the growth of renewable energy.

By opting into GreenPower, customers can help fund the development of green energy sources like solar, wind, and hydroelectric power. This small extra cost is added to your regular bill, but it can make a significant difference in promoting sustainability.

When signing up for GreenPower, you can typically choose how much of your electricity consumption you want to dedicate to renewable energy. Most energy providers offer different increments—10%, 20%, 50%, or even 100% of your usage can be invested in renewable energy projects. This gives you flexibility in how much you’re willing to contribute, allowing even small changes to make a positive environmental impact.

Some energy retailers might include GreenPower as part of specific plans, while others offer it as an optional add-on to their market offers. Whether it's a standalone green energy plan or an additional feature, opting into GreenPower is a simple way for eco-conscious households to align their energy usage with their environmental values.

Choosing to support clean energy through programs like GreenPower doesn't just benefit the environment—it can also raise awareness about renewable energy and encourage broader societal shifts toward sustainability. Though the cost is a bit higher, many customers feel it's a worthwhile investment for a cleaner future.

Can gas and electricity be combined?

Have you ever thought about simplifying your energy bills by combining your electricity and gas under one provider? The good news is, you can.

Many dual fuel energy providers offer the convenience of managing both your gas and electricity through a single company. This means one bill, one point of contact, and less paperwork to deal with each month.

But convenience isn’t the only benefit. Some dual fuel providers also offer discounts or special deals when you bundle both services together. These discounts can make your overall energy costs more manageable, providing an extra incentive to keep things streamlined.

However, it’s essential to do your homework first. Before signing up, take the time to compare each service—electricity and gas—individually to make sure you're still getting the best possible deal for each. While bundling can save you money, it doesn’t always mean you're getting the lowest rates for both services.

By carefully comparing and considering your options, you can enjoy the ease of dual fuel while also ensuring you’re maximizing your savings.

Contact Compare Energy today

Now that we've explored the basics of energy plans, it’s time to help you find the perfect deal.

But what exactly defines the "best" plan? It’s crucial to remember that what works best for your neighbour might not be ideal for you. Why? Because each person's energy usage and budget can vary significantly.

Finding the right deal is simpler than it sounds - and we can help. Calling Compare Energy on 1300 790 106 ensures that you get the comparison you need across a range of Australian providers. Our team is ready and waiting to take your call.