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Is it time to fix your energy deal?

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With wholesale energy prices falling, customers are wondering whether they may soon be in a position to fix their energy deal if they wish to do so. What do you need to know before deciding whether it’s the right move for you?
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As a result of various factors, wholesale energy prices rocketed in September 2021 but have lowered significantly in the past few months.

The level of the energy price cap is £1,834 until 31 December 2023, though it will increase to £1,928 from January to April. Both of these levels are lower than the level of the government's Energy Price Guarantee, which is £3,000 per year for a medium use average-sized household paying by Direct Debit. With wholesale prices dropping, fixed deals are now beginning to return to the market in limited quantities.

Those who become eligible for one of these fixed deals may now be wondering if it's worth locking in a fix if you want to be sure about the amount you could pay. 

What are the figures I need to know?

A lot of the confusion around average figures and capped unit rates stems from the fact that the energy price cap and the Energy Price Guarantee are two systems that have the same purpose - capping unit rates and standing charges for standard variable tariffs - but run simultaneously together.

The important thing for customers to know is: whichever one has the lower level is the one that suppliers will use to set their prices. The government sets the level of the Energy Price Guarantee in response to the price cap level and Ofgem sets the level of the price cap in response to wholesale energy prices.

So while the Energy Price Guarantee is set at £3,000, the level of the price cap is set at £1,834. The prices of fixed deals at this point are likely to be around the price cap level.

The complication is that wholesale energy prices could still go up or down and, with the price cap now being recalculated every three months, there is the possibility that a fixed deal which starts as the cheapest option could become a more expensive option as time wears on.

What are the pros and cons of fixing energy now?

  • Do consider exit fees. You may change your mind about your fixed deal and want to switch. If this happens after your 14-day cooling-off period, you might have to pay an exit fee. Not all tariffs have them but most do, so make sure you know whether yours does. 

  • Do consider the length of the deal. Most deals are for 12 or 24 months. During this time the price cap could rise or fall depending on market conditions, so consider how long you would like to stay locked in for. 

  • Do stay informed. It’s important to keep a close eye on the market and run regular comparisons to see what deals are on offer. By signing up to alerts, you will be able to stay close to what’s happening in the energy market and be informed when a good deal comes along. 

  • Don’t get a deal you can't afford. Make sure you can afford the deal you choose to take and do not feel pressured into taking one that you will struggle to pay for. 

  • Don’t just look at the direct debit amount. The price you pay through Direct Debit each month is usually based on the estimated amount you will use over a year and may not be the actual cost. Make sure you look at the unit price and standing charge so you can understand how much you will be charged for your energy usage and how it differs from what you are currently paying.
    Find out more about fixing your energy deal here.

Customers will have to consider their finances and how important price certainty is to them before signing up to a fixed deal. The right decision for someone else might not be the right decision for you, so make sure you consider all your options carefully.

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