As a consumer, making informed decisions on how to minimize your energy costs is important to you, and understanding how you’re charged by your utility is a crucial step in getting the most out of your dollar.
Utility Pricing Methods
There are several ways utility companies will charge for the energy they provide your home, but the most popular options are fixed rates, variable rates, and tiered rates.
With a fixed rate, you can expect to receive the same price per kWh for the majority of your contract’s term. Receiving the certainty of a fixed price can lead to a larger cost overall, but the stability of knowing that cost month-to-month can be an added benefit when budgeting your expenses.
With variable pricing, the rate you pay per kilowatt-hour for electricity is determined by market supply and demand or other factors defined by your utility, supplied and outlined in your terms of service.
With this payment option, you might see your price decrease if market prices drop, or see an increase if the inverse occurs.
Tiered pricing utility rates are structured in a way where the amount you pay per kWh increases as your electricity usage reaches predetermined levels. Your utility allows a certain amount of kilowatt-hours in each tier at a certain rate, moving you into the next highest tier once you’ve exceeded the limit.
Typically, the lower tiers offer more affordable energy prices and increase as your consumption increases. Tier pricing is often used to help influence consumer behaviors and positively impact the overall strain on utility companies.
How Solar Can Help
Perhaps the most obvious benefit of installing your own solar PV system is the energy produced by the system can help offset consumption of electricity from the grid. Paired with net metering, a method in which the utility company credits you for the excess energy your solar panel system produces, the savings from solar can potentially eliminate your energy bill in its entirety.
It’s a good idea to read through the service agreement and understand the pricing method, and other terms and conditions that come with receiving electricity from your utility supplier.
Download our eBook, Solar & Energy Bills, and find out how you can save more by simply understanding how you're being charged for your energy consumption.