The Energy Price Cap fell to £1,690 per year on April 1st. But with unpredictable prices, many wonder, ‘Should I fix my energy prices or stay on the price cap?’ This guide will help you decide if fixing is right for you.
Energy prices recently fell by 12.3% for customers on the standard variable tariff. Ofgem, the Energy Regulator, has set the energy price cap at £1,690 per year until 30th June 2024, down from £1,928.
Switching to a fixed-rate energy deal is usually a top tip for saving money.
But should you fix your energy prices or wait to see if prices continue to fall?
Below, we explore what you should know about fixed energy deals and how they work, whether it’s a good time to fix your prices, and what to consider before fixing.
Key Takeaways:
- You’ll likely not benefit from fixing your energy prices right now.
- Predictions show that prices will continue to fall and you might miss out on lower bills if you fix.
- Consider your current tariff, how you pay for your energy, exit fees, and changes to switching rules when deciding whether to fix.
- If you’re on a prepayment meter, the price-capped tariffs are currently the cheapest on average, so fixing them might not be a good idea.
- Fixed prepayment tariffs are very limited and expensive.
- Consider whether you prefer the security of a fixed deal or low prices before deciding to fix your energy prices.
What Are Fixed Energy Deals?
Before determining the correct response to the question, ‘Should I fix my energy prices? ‘, it’s important to understand how fixed deals work.
Fixed energy deals, or fixed price energy tariffs, mean the price you pay for each unit of electricity and gas remains the same for the duration of the contract.
The price includes a fixed kWh charge for a unit of electricity and gas and a fixed daily standing charge (the fixed daily charge you must pay for energy, no matter how much you use).
Fixed-price energy deals usually last 12 months, but some suppliers allow you to lock in the price for longer.
You can fix your prices through a dual fuel energy deal, where your electricity and gas are supplied by the same company. However, you can opt for different suppliers, with one fixed deal for electricity and another for gas.
Fixing your energy prices ensures you remain unaffected by price rises until the end of the deal. It’s usually a good way to budget since the payments are predictable and you’ll know exactly what you’ll pay.
Customers not on fixed energy deals are usually on the standard variable tariff, the supplier’s default rate governed by energy price cap movements.
What is the Energy Price Cap?
Ofgem, the UK’s independent energy regulator, sets the energy price cap.
It sets the maximum price energy suppliers can charge for each kilowatt hour (kWh) of energy and applies to the supplier’s standard default rate.
According to Ofgem, the cap has been the primary form of price protection for domestic customers since its introduction in 2019. It ensures domestic customers pay a fair price for their energy.
The price cap level is based on an average household’s typical use. It only caps the energy unit price, not the total bills. The amount you pay can vary depending on where you live, the energy you use, and how you pay for your energy.
The price cap currently stands at £1,690 per year until 30th June 2024 for typical households who use electricity and gas and pay by Direct Debit. The current cap is £238 lower than the previous cap of £1,928 set between January to March 2024.
Ofgem reviews the energy price cap every three months. The next announcement is due in May 2024.
What is the Energy Price Guarantee?
The Energy Price Guarantee (EPG) was a government intervention that temporarily replaced the energy price cap and further capped the price households paid for energy.
Domestic consumers have faced significant increases in energy bills in the last two years. Bills would have risen to an average of over £4,000 per year for typical customers without government intervention.
The government introduced the EPG in October 2022 to protect households from high energy prices. The EPG ensured households paid an average of £2500 between October
2022 and June 2023.
in July 2023, the EPG increased from £2500 to £3000 and was in place until March 2024. The energy price cap has been lower than the EPG for months due to falling wholesale prices, and suppliers have chosen to use it for energy prices.
Should I Fix My Energy Prices?
When gas prices and energy bills began to surge at the end of 2021, fixed price tariffs became more expensive and rare. Suppliers were no longer able to offer competitive fixed-price deals.
Today, wholesale energy prices are falling, and fixed deals are starting to come back. You may be wondering, should I fix my energy prices?
You’ll likely not benefit from fixing your energy prices right now since the fixed deals available are unlikely to save you much money. Unless you can fix at rates lower than the current price cap, you’ll likely pay more than staying on the price cap.
Most fixed-rate deals aren’t as appealing as they used to be. They’re priced higher than the default tariff, so it’s worth waiting until more fixed deals become available at competitive rates as energy prices continue to fall.
Energy research company Cornwall Insight’s predictions show that prices will fall again in July before rising slightly in October.
In an X social media post, Ofgem warned households to think before fixing because prices are still unpredictable, and signing up for a fixed rate now might mean you miss out if prices fall.
The regulator also urges consumers to shop around with a range of tariffs, weigh up all the information, and seek independent advice from trusted sources.
You should also consider what’s important between getting the security of a fixed deal or getting the lowest price.
What Should I Consider Before I Fix My Energy Prices?
Wondering, ‘Should I fix my energy prices?’ And you’re feeling tempted by a fixed deal? Here’s what to check:
Your Current Tariff
Before switching to a fixed deal, take time to understand what you’re currently paying and what type of deal you’re on. Are you on your provider’s default standard variable tariff or already on a fixed deal?
Households have increasingly defaulted onto default tariffs in the past few years since their fixed tariffs expired and no competitive fixed deals were available.
Data from Ofgem shows customers on default tariffs have increased substantially and represented roughly 90% of households by January 2024.
Note your daily standing charge and check how much you’re being charged per kWh for electricity and gas. Check how your payments on the new fixed deal will compare with the tariff you’re currently on.
How You Pay for Energy
How you pay for your energy can impact your current price.
The cheapest way to pay for energy is usually through monthly direct debit. It’s an automated payment method where your payments are based on an estimate of the amount of energy you’ll use over a year.
Your energy supplier estimates your annual usage and divides it by 12 to determine how much you’ll pay monthly. Payments can increase if you use more energy than the supplier has estimated.
You’ll usually pay more if you pay your energy bill upon receipt. The tariff will be more expensive than a direct debit one and you’ll have to pay a fee if you’re late.
You’ll likely pay more in winter than in summer and prompt payment discounts are generally less than what you’d save with direct debit.
Are There Any Exit Fees?
Check whether you’d have to pay to leave if you’re considering a fixed tariff.
Exit fees or penalties usually apply if you want to leave a fixed-price deal before your contract ends.
Most suppliers allow you to switch from the default standard variable tariff penalty-free, but you should check to be sure.
Some fixed deals also don’t have exit fees. You can stay protected against rising prices and still have the freedom to switch at any time at no cost.
Some providers can waive exit fees if you’re only switching tariffs but not changing suppliers.
If you’re switching in the last 49 days of your fixed tariff, your supplier can’t charge an exit fee. You also shouldn’t pay exit fees if you’re only moving homes, provided you keep the tariff and only change the address.
Are There Any Changes in Switching Rules?
It’s worth knowing any new rules if switching to a fixed deal.
Previously, suppliers had to complete a switch in 15 working days according to the Supplier Guaranteed Standard of Performance (GSoP). Exceeding this limit would entitle the new customer to compensation.
Changes to GSoP now require suppliers to switch a customer’s electricity or gas supply within five working days from 1st April 2024.
If a supplier fails to switch you within the required time, they’ll pay you a £30 compensation fee.
You can complain to the supplier directly if they fail to switch you on time. If they don’t compensate you, you can escalate the issue to the Energy Ombudsman, who can resolve the dispute.
Should I Fix My Energy Prices if I’m on A Prepayment Meter?
Prepayment meters allow you to pay for gas and electricity before using them.
They’re also called ‘pay-as-you-go meters’ and feature different prepayment tariffs, including a standard variable prepayment tariff, a fixed prepayment tariff, or a ‘green’ prepayment tariff.
You can switch suppliers if you have a prepayment meter and any debt is less than £500. You may want to wait if you’re considering switching to a fixed deal on a prepayment meter.
Pay-as-you-go rates are currently the cheapest on average for price-capped tariffs thanks to recent changes.
According to Ofgem, prepayment customers on price-capped tariffs will pay slightly less than direct debit customers from 1st April 2024, so fixing may not be the best move.
Additionally, there’s a very limited choice for fixed prepayment tariffs, which are more expensive than other tariffs.
What Are The Benefits and Drawbacks of Fixing My Energy Prices?
Benefits:
- In a stable energy market, fixed-rate deals are usually cheaper than the supplier’s default variable rates. However, this is not the case at the moment.
- The cost of your energy remains the same even when the price cap changes, making it easier to budget.
- If prices go up or there’s another energy crisis, your cost per unit will remain unaffected until the end of the contract.
Drawbacks
- You’ll not benefit from cheaper bills if you sign up for a fixed tariff and the cost of energy falls.
- Some suppliers will charge an exit fee if you leave the contract early.
- Ofgem’s energy price cap will not protect you. During the energy crisis, customers on fixed-rate tariffs were paying more on their energy bills than customers on variable tariffs.
Final Thoughts on Should I Fix My Energy Prices
Fixing your energy prices at the moment is not recommended since the market is still unstable and prices may continue to fall. Fixing your prices may mean you miss out on cheaper rates and better deals down the line, so it’s better to wait and see if prices continue to fall.
Although you’ll likely not benefit from moving to a fixed-rate energy tariff right now, it’s worth keeping an eye on the market for when cheaper deals return. Reductions in energy prices have raised hopes that suppliers will offer cheaper, more competitive, fixed-price deals in the near future as they become more confident in the market.
Sources and References
- https://www.ofgem.gov.uk/energy-price-cap#:~:text=The%20energy%20price%20cap%20is,and%20pay%20by%20Direct%20Debit.
- https://www.ofgem.gov.uk/sites/default/files/2024-03/Future%20Price%20Protection%20Discussion%20Paper.pdf
- https://twitter.com/ofgem/status/1655923569598029826
- https://www.ofgem.gov.uk/sites/default/files/2024-03/Future%20Price%20Protection%20Discussion%20Paper.pdf
- https://www.ofgem.gov.uk/publications/supplier-guaranteed-standard-performance-switch-speed-decision
- https://www.ofgem.gov.uk/publications/new-energy-price-cap-level-april-june-2024-starts-today