Is it time to fix your energy, locking in the rates you pay for your gas and electricity bills each month? Or is it best to stick with the energy price cap?
Deciding whether to fix your energy tariff or opt for a variable tariff has long been an important consideration for households hoping to keep their energy bills to a minimum.
It’s been a debate that has died off over the last few years, with fixed tariffs effectively vanishing when the energy crisis hit. However, suppliers are once again launching fixed energy tariffs, and as the price cap rose by 5% on 1 January, it’s time once again to ask whether or not you should fix your energy bills.
If you’re ready to switch, here is how to do an energy comparison to find the cheapest electricity and gas deals. If you’d like to take a look at some open-market fixed tariffs, compare energy deals with our friends at Go.Compare.
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The return of fixed energy tariffs
The energy markets have been through a lot of turmoil over the last two years, initially with rising wholesale costs leading to the collapse of a host of energy suppliers in the UK. This was followed by the Russian invasion of Ukraine and the knock-on impact it has had on the energy market.
It meant that most suppliers largely withdrew fixed energy tariffs, leaving the majority of households on standard variable tariffs instead, which are protected by the energy price cap. However, in the last few months, we’ve seen energy suppliers launch fixed energy tariffs again.
The price cap increased by 5% on 1 January, taking a typical household bill to £1,928 a year (use more than average, you pay more, use less, you pay less).
It’s worth seeing our Will energy prices go down? article for what’s expected to happen over the next year and a calculator for how it’ll affect your bills.
Here are the cheapest fixed energy deals currently available, compared against the new January price cap (all have dual-fuel exit fees of £150). And then do read on for what you need to consider before switching.
E.on Next Pledge: Tariff tracks £50 below the price cap and changes every three months
For new and existing customers, E.on Next has a tracker-style tariff called Next Pledge, which may be worth considering. Here’s the lowdown:
- Next Pledge is a 12-month fixed-term tariff which tracks the price cap, staying £50 below the cap (at average annual consumption).
- As it tracks the price cap level, the price will change each quarter. So it’ll drop in April.
- You must pay by direct debit
- Exit fees of £25 per fuel apply.
E.on’s also offering a discounted tariff to existing customers on low incomes. This discounts the October to December price cap rate by 25% for low-income households (ie, those earning less than £19,000 a year – or £31,000 for those with medical needs) that are not in debt until March 2024. This discount increases to 50% for the same households if they have existing energy debt. This debt will then be wiped clean when the special tariff ends in March 2024.
Regardless of who your energy supplier is, if you’re struggling to pay your bills, you shouldn’t have to endure it alone. See what help you may be able to get with your energy bills, including hardship grants offered by energy firms.
Why are fixed tariffs coming back?
One of the main factors for energy suppliers when it comes to putting together their tariffs is the price of energy on the wholesale markets. As the price of energy rocketed, suppliers felt unable to offer fixed energy tariffs, which is why they effectively vanished.
However, those wholesale energy costs have been declining for some time. And that has meant energy suppliers feel more confident about offering fixed energy tariffs.
There are still limits to that confidence, though. In some cases, the fixed energy tariffs are restricted to only existing customers. The pricing is also pretty modest, in many cases representing only a small saving against the current price cap – and that changes every three months.
What will happen to energy prices?
To make a decision on fixing, you need to understand what is likely to happen to the energy price cap over the next year and will energy prices go down in 2024.
Here are the latest predictions (as of 22 January) from Cornwall Insight on how the price cap is expected to fluctuate on average. Basically, this is the price you would pay if you don’t fix your energy.
These predictions are a lot lower than previously expected. But remember, these are simply predictions and that these things can change around pretty quickly. Though we are now two-thirds of the way through the assessment period for the April cap, so barring any major market movements, the 16% price cap drop in April prediction should be pretty close.
|Price cap on new typical use figures
|Old cap: 1 October 2023 to 31 December 2023
|£1,834 a year
|Current cap: 1 January 2024 to 31 March 2024
|UP 5% - £1,928 a year
|1 April 2024 to 30 June 2024
|DOWN 16% - £1,620 a year - PREDICTION
|1 July 2024 to 30 September 2024
|DOWN 8% - £1,497 a year - PREDICTION
|1 October 2024 to 31 December 2024
|UP 3% - £1,542 a year - PREDICTION
Note, Based on Ofgem’s new typical use figures of 2,700 kWh for electricity and 11,500kWh for gas.
The pros of fixing your energy tariff
Based on current predictions, and there is no crystal ball with this, our rough rule of thumb is if you find a fixed deal for around 15% less than the new January price cap, it might be worth considering. If you are someone that really values price certainty and want to lock your rates in for a year now, without having to worry about what happens in the energy market over that period, you may even look at fixes that are around 10% less than the current price cap.
With a fixed energy tariff, you know broadly what you will be paying for your energy each month. The supplier works out what your likely annual use is going to cost, and then divides that into 12 equal monthly payments through your energy direct debit.
Having that knowledge around what your outgoings on energy will be is a positive at all times, but particularly in the current environment when so many are seeing our household finances stretched. Knowing what your energy will cost you makes budgeting a lot easier – though of course, if you start to use more, your bill will go up.
The cons of fixing your energy tariff
Before you rush off to snap up a new fixed energy tariff, it’s important to be aware of the possible downsides.
The price cap changes every three months and the wholesale market can be volatile, so what looks like a decent deal now, may not be over the course of the year if prices drop elsewhere.
As a result, what may look like a tariff that could give you a saving over the next year today, could end up costing you more overall than remaining on a tariff protected by the energy price cap if the market changes. Given fixed tariffs tend to charge hefty exit fees, there will be a further cost if you change your mind and want to move elsewhere, too. So if prices drop elsewhere, you may be locked into a deal paying more than if you had stayed where you were.
Should I fix my energy tariff?
There’s no definitive answer here as no one can predict with any certainty exactly what will happen to energy prices in the future. Ultimately, it will come down to your own circumstances and attitude to risk. But there are some factors to bear in mind to help you work out if it’s a good idea for you to fix at the moment.
The first will be understanding what fixed tariffs are available to you. This means checking not only what your current supplier is offering to existing customers but also what other suppliers may be offering in your area.
Based on current predictions, it may be worth considering a fixed deal if you find one that’s around 15% less than the January price cap (down to 10% less if you really value price certainty).
Locking rates in will shield you from any fluctuations in the energy market over that period. But it’s worth doing your maths (we show the average percentage differences in the table of fixed deals above).
It’s important here to check the unit cost they charge for gas and electricity, as well as the standing charge. You can then work out what the energy bill is likely to be over a year for your actual energy use, rather than the headline quote.
You will also need to work out for yourself how important the certainty offered by a fixed tariff is. If it’s necessary for your budgeting that you know exactly what your bill will be each month, a fixed tariff will be more appealing. But if you can live with a bit of fluctuation every now and then, you may be better off holding off.
The future for our energy bills?
Even though the price cap has dropped below £2,000, energy prices are still around double compared to what households were paying two years ago.
Big geopolitical events, such as the war in Ukraine and issues in the Middle East, have a big impact on wholesale costs and therefore our energy bills.
The future of energy prices remains uncertain – see will energy prices go down in 2024? – and projections can shift. An energy deal that looks inviting now may not be your best bet in the future if the price cap decreases further. You wouldn’t want to be stuck with a costly plan with heavy exit fees.
On the flip side, in a scenario where prices shoot up, leading to higher energy costs, you may miss out on the chance for a cheaper deal. Ultimately, it all comes down to your approach to risk.
Looking for other ways to reduce the amount you’re paying for your gas and electricity? Check out these top energy saving tips to crank down your bills.