Indexed electricity tariff vs. fixed electricity tariff: Which is better for you?
In Spain, when contracting electricity, you can choose between two types of tariffs: indexed electricity tariffs or fixed electricity tariffs. Although both have their advantages, it is important to know how they work in order to make an informed decision and, in the long run, save on your bills. Here we explain the key differences between them.
Indexed electricity tariff: How does it work?
The indexed tariff is directly linked to the price of electricity on the wholesale market (also known as the ‘pool’). This means that the price you pay per kWh varies according to the daily and hourly fluctuations of the market. It can be lower at times when demand is low and higher when demand spikes, as is typically the case in the summer and winter months when the use of air conditioning or heating increases considerably.
Advantages of the indexed tariff:
- Long-term savings: Although in certain months of the year, such as July or January, electricity prices may increase due to seasonal demand, in general, the indexed tariff offers a lower price during months when demand is low, such as spring or autumn. This means that, if one looks at the annual consumption, the user can save compared to a fixed tariff.
- Transparency: You pay the real price of energy, without extra costs or margins added by the suppliers, which allows you to benefit directly from the times when electricity is cheapest.
Disadvantages of the indexed tariff:
- Price variability: The bill will not always be the same and will be subject to market variations, which can be unpredictable at certain times. In seasons of high demand, such as winter or summer, you may pay more than with a fixed tariff.
Fixed electricity tariff: How does it work?
The fixed tariff, as its name suggests, establishes a fixed price per kWh throughout the year, regardless of market fluctuations. This type of tariff offers stability and predictability, as you will know exactly how much you will pay for the energy consumed, regardless of the time of year or changes in the electricity market.
Advantages of the fixed tariff:
- Stability and control: If you prefer to know in advance how much you will pay each month, the fixed tariff is ideal. You won’t be affected by price rises in the market, as the cost of electricity will remain constant.
- Peace of mind: You won’t have to keep an eye on market prices or worry about when electricity is cheapest to use.
Disadvantages of the flat rate:
- Possible cost overcharge: As it is a tariff that remains constant, it is generally a little more expensive. This is because marketers add a safety margin to cover possible market rises, so you will pay the same even at times when electricity is cheaper.
Which one is best for you?
While the fixed tariff offers stability, with the indexed tariff you can save in the long term, especially if you can adapt your consumption to the hours of the day when electricity is cheaper or if you have the flexibility to withstand price variations in high demand seasons.
It is important to remember that, although in winter and summer the price may go up, in an annual analysis, people with an indexed tariff tend to benefit from a lower cost compared to those who choose a fixed tariff. For consumers who are attentive to the market and aware of their consumption habits, the indexed tariff can be a more economical option.
To sum up:
- Index tariff: Ideal for those who are looking for long-term savings and are willing to assume market fluctuations.
- Fixed tariff: Perfect for those who prefer stability and predictability in their bill, even if this implies a slightly higher cost.
The choice depends on your lifestyle and how you prefer to manage your electricity bills – do you prefer stability or the opportunity to save with some variability? The choice is yours!
