Power and gas tariffs: better fixed or variable?

Is it better to choose a fixed or variable tariff to manage your everyday energy use? With the end of the protected market, more and more consumers are asking this question to find the power and gas offers that best meet their daily energy needs. It’s true that the transition to the free market offers new opportunities, but it also requires a greater awareness of choice in order to avoid surprises in your bill.

Each option has advantages and disadvantages that depend on several factors, such as energy market trends, confidence in finding more advantageous opportunities as prices fluctuate, and personal consumption habits. There is no single solution, but a guide to the main aspects of the two categories can help you make an informed choice. Let's find out how. 

How to distinguish fixed and variable tariffs

Fixed and variable tariffs differ in the way the prices of the energy component and the raw material gas are calculated. First of all, therefore, it is important to understand how energy and raw material gas expenditure are composed:

• Raw material energy¹ expenditure

  • Energy purchase 

  • Dispatch: a service that ensures a balance between the supply and demand of energy at all times. 

  • Marketing and Sales Charge (power CCV): contribution to cover the supplier's marketing costs.  

• Raw material gas² expenditure

  • Purchas of natural gas

  • Commercial risk coverage 

  • Marketing and Sales Charge (CCV gas): contribution to cover the supplier's marketing costs. 

The cost of raw materials (energy and gas) applies to both types of tariffs, but how does it vary between fixed and variable tariffs? Let us go into detail:

• Fixed tariff³: the prices of the energy component and the raw material gas component are set when the contract is signed and remain unchanged for its entire duration, indefinitely. The price of gas transport, meter management and system charges depends on the tariff updates of ARERA (Regulatory Authority for Energy, Networks and Environments).

• Variable (or index-linked) tariff: the prices of the energy component and of the raw material gas component vary according to developments on the energy market, which is regularly updated according to wholesale prices. Again, the price of gas transport, meter management and system charges depends on the tariff updates of the Authority.

In this case too, the same principle that governs the difference between fixed-rate and variable-rate mortgages for buying a house apply. With a fixed-rate mortgage you always pay the same instalment every month, at the interest rate available on the market and locked in when the contract is signed. With a variable-rate mortgage, on the other hand, the instalment changes according to market interest rate trends: you might pay more in one month, but save in the next.

1  Arera: What is energy expenditure?

2 Arera: What is natural gas expenditure?

3 Arera EN: What are fixed-price offers?

Fixed and variable tariffs: pros and cons

Choosing a fixed tariff guarantees stable costs over time and greater security against price increases. The price of energy and gas remains the same for the duration of the contract, indefinitely, and protects you against any price increases on the market, allowing you to plan your household expenses in advance. However, if energy prices fall, if you have chosen a fixed tariff, you will not benefit from any reductions. 

A variable tariff, on the other hand, is based on the development of the PUN Index GME, the wholesale energy price published by the GME (Gestore Mercati Energetici) on the energy market and calculated on the average of the zonal prices of each region. Its cost is updated monthly, offering more dynamic pricing. 

When the market experiences a price drop, the variable tariff allows you to pay less than a fixed tariff, generating a saving on your bill for the same consumption. But beware: if energy prices rise, supply costs also rise, making your bill less predictable and potentially higher during increase periods.

Tips for an informed choice 

Would you rather have the certainty of a locked-in cost or the possibility to save money by following market trends? Follow these tips to navigate through the tariffs available on the market and choose the power and gas offers that best meet your needs:

• Follow the movements in the energy market: energy prices are not static; they vary depending on several factors, such as supply and demand, raw material costs and the economic context. If the market tends to be stable or is growing, a fixed tariff can provide protection against price increases. Conversely, if prices show a downward trend, a variable tariff could save you money over time. 

• Look at your consumption habits: consumption habits directly affect the affordability of a tariff, based on three main factors:

  • Periodicity: If your consumption is stable over time, a fixed tariff is the safest choice for you to plan your energy costs in advance and avoid sudden price fluctuations. If you choose a locked price tariff, you can differentiate it according to your consumption habits: 

    • A fixed-rate offer means a single energy component price at every hour of the day.

    • A three-band tariff: provides for a different energy component price during the day, according to the time of consumption.

    • If, on the other hand, your consumption changes frequently, a variable tariff can be an opportunity to find increasingly advantageous offers according to your changing habits.

  • Energy costs: users, such as households, who consume more energy are more exposed to the risks of price increases, so a fixed tariff can help to manage the household budget with more peace of mind. For consumers who spend a lot of time away from home or have limited power and gas expenses, the variable tariff can offer attractive bargains. 

  • Risk appetite: no less important, the approach to expense management also plays a role when choosing the most suitable tariff. If you would rather have certainty and plan your budget with precision, a fixed rate will provide you with stability and peace of mind. If, on the other hand, you prefer more dynamic management and want to seize the opportunities offered by the market, a variable tariff may be a more flexible choice.

Choosing between fixed and variable tariffs means finding the right balance between security and flexibility. By taking a good look at your needs and at the market trends, you can make an informed decision and optimise your energy expenditure. Stay up to date with energy and follow the news on power and gas offers and energy world updates on enel.it.