As its name suggests, you will enjoy a discount off the regulated tariff for such plans in the open electricity market. Despite that savings regardless of the prevailing electricity tariff, let’s understand how these plans work and whether they are suitable for you.

Table of Contents:

1. How does a Discount off the Regulated Tariff Plan work?
2. Example
3. Advantages
4. Disadvantages
5. The Benchmark
6. Should You consider a Discount off the Regulated Tariff Plan?

One Minute Summary:

• Overall, you will enjoy a discount off the prevailing electricity tariff regardless of its quarterly adjustment.
• As a result, this works best when you want to enjoy a fuss-free discount in your monthly electricity bill.
• Based on the past electricity trend, it is difficult to reach the optimal level of savings through a discount off the regulated tariff plan.

Part 1: How does a Discount off the Regulated Tariff Plan work?

By and large, an open electricity market retailer will determine two main variables in a discount off the regulated tariff plan:

• The pre-determined discount to give you, e.g. 20% discount; and
• The contract duration, e.g. 24 months.

Thereupon, you will enjoy the same discount throughout the contract duration. In order to understand how such plans work, let’s go through an example in the next section.

Part 2: Example

As an illustration, an open electricity market retailer offers the following plan:

• Discount off the Regulated Tariff: 20%
• Contract Period: 24 months (From October 2018 to October 2020)

At the same time, let’s assume that we consume 300 kWh of electricity every month.

Part 2.1: Total Bill under Discount off the Regulated Tariff Plan

Under those circumstances, you will enjoy 20% discount monthly for the next 24 months. By and large, this is regardless of the prevailing electricity tariff. In sum, you will pay a total of $1,427.49 in that two years.

Part 2.2: Total Bill under Prevailing Electricity Tariff

On the other hand, you would have paid a total of $1,784.36 in the same period. As you would agree, you saved $1,784.36 – $1,427.49 = $356.87 by switching to a discount off the regulated tariff plan. When we scrutinise these numbers further, you save about $14.87 a month, i.e. 20% off your original bill.

Part 3: Advantages

On the positive side, you will enjoy the same rate of discount regardless of the quarterly fluctuation in the electricity tariff. In the long run, you will definitely be better off. If the electricity tariff continues to be low, then you will enjoy greater savings on your electricity bill.

To demonstrate, let’s take the electricity to be 20.97 cents/kWh (in July 2020). In this situation, you will pay 16.78 cents/kWh after a 20% discount. For one thing, this is lower than the lowest electricity tariff in April 2016 (at 18.92 cents/kWh).

Part 4: Disadvantages

On the contrary, this discount has a direct correlation to the prevailing electricity tariff. Consequently, you will pay a higher price if the electricity tariff rises. Despite that discount, you will be paying a higher electricity bill to that end.

To illustrate, let’s take the electricity tariff to be 25.94 cents/kWh (in January 2020). In this case, you will pay 20.75 cents/kWh after the same 20% discount. As a matter of fact, this is more expensive than the rates offered by most of the fixed price plans.

Part 5: The Benchmark

Based on the past electricity trend, let’s form a benchmark when we choose a discount off the regulated tariff plan. In general,

• We want a plan that offers a discount rate of at least 19.16% (optimal rate);
• Based on the earlier point, it is okay to consider a long-term contract, e.g. 2 years.
• Despite that, we may also consider any plans that offer a discount of at least 11.47% (minimum requirement).

Meanwhile, it must be remembered that the above benchmark assumes that the electricity tariff stays within the same trend. To make the right choice, check out my detailed comparison on How to Choose an Open Electricity Market Retailer.

Part 6: Should You consider a Discount off the Regulated Tariff Plan?

Above all, you will always save on your electricity bill through a discount off the regulated tariff plan. This is owing to the fact that the electricity retailer offers a fixed discount throughout the contract period. However, the (past) electricity tariff trend tells us one thing; there exists a higher risk-return but not as much discount to mitigate this risk.

Checklist:

1. How much electricity do you consume on average?
2. Calculate your potential savings with a discount off the regulated tariff plan.
3. Read the terms and conditions carefully before making a switch.