Should you fix your energy prices now?
The energy market is very unpredictable at the moment with wholesale prices fluctuating by a fair amount. With this in mind, it is natural to think whether now is the best time to fix your energy prices. You could lock in for the next two to three years but this risks you being stuck on a more expensive tariff when prices settle down.
So, what decision should you make? We will discuss it all here.
Before reading further, it is important to know that fixing your energy prices does not mean than your energy bills won’t fluctuate. Fixing your energy price simply means that you are fixing the rate you pay for each unit rate energy, but your bills will still be higher the more gas and electricity you use.
Reasons why you should NOT fix your energy prices now
In normal circumstances, remaining on a standard variable tariff (SVT) isn’t the most cost-effective thing to do. People tend to fall into an SVT once their tariff runs out and they haven’t switched to a new one yet, or if their energy supplier has gone bust.
SVTs are amongst the most expensive tariffs on the market, which is why it makes sense to move onto a fixed rate tariff once your current deal runs out. The high cost of SVTs was one of the reasons why Ofgem introduced the ‘energy price cap’. The regulator’s aim was to put a stop to energy suppliers ‘profiteering’ from customers who forget to, or didn’t want to, switch their suppliers.
The price cap is reviewed every six months to decide on what level the price cap should be at. The outcome of the review is announced each February and August, which is two months before the new level takes effect in April and October.
There’s been some criticism of the price cap in the past – largely because fixed rate prices tend to bunch up around the level of the cap – but it’s certainly helped households keep costs down as energy prices soared over the last few months.
The level of the cap had been determined a month before the first signs of the energy crisis in September 2021, which helped households but not those suppliers who suddenly found themselves operating at a loss. This was one of the reasons why a number of energy suppliers have gone bust over the last six months.
But things could be about to change for households when the new level of the cap is announced next month. This is because we’re experiencing unprecedented movements in global wholesale prices, and the regulator needs to set it at a level that helps both consumers and suppliers.
It’s estimated that the cap will increase by around 50%, which means the average standard variable rate tariff will increase by around £638 to £1,915 a year.
This is why it might be better to stick with the SVT until the price cap changes on April 1, 2022. Doing so will guarantee that you are on the lowest rate in the market, which is especially important during the winter months where the use of gas and electricity tends to be higher.
It might also be worth considering sticking with your SVT until the second price cap change in October 2022.
This is because there might be a chance of wholesale prices dropping to a more desirable price point by that time, as things are still fluctuating quite widely right now.
But this depends on what suppliers will do once the April price cap is announced. If suppliers hike up their fixed prices to the level of April’s price cap to cut the losses they made over the last six months, then staying on an SVT and waiting until October should be the best bet.
However, there is also the chance that some suppliers might drop their prices lower than the April price cap to attract new customers. But no matter what happens, it is best to stay on an SVT until either April’s price cap change or October’s price cap change.
Reasons why you SHOULD fix your energy prices now
It is still possible for you to fix your energy prices, but preferably only for the reasons listed below:
Peace of mind
Changing wholesale prices can see your bills going up and down unexpectedly, even if you're using the same amount of energy you usually do! If you just want some peace of mind, then fixing your energy prices may be an option to consider. For added assurance, it may be best to switch and fix with a bigger supplier as going with a smaller supplier has the risk of it going bust.
You can afford the premium and will pay to “fix” now
If you have the money to afford the current premium wholesale prices, and you just want to fix your energy prices to get this all out of the way, then fixing your energy prices now could be for you.
You want to hedge your bets and lock in now for the next 2-3 years
You could switch to a two or three year deal and avoid any prices rises during that time. However, the issue is that prices are so high at the moment that they could feasibly come down in the next couple of years, meaning that you could be stuck on a higher rate than you need to be.
If you do go down this route, we’d recommend choosing a deal that comes with no early exit fees or at least checking how much the fees are if you decide to end your deal early. This way you can weigh up whether locking in for a few years is the best move to make.
Click here to run an energy price comparison, and see if you could be paying less for your gas and electricity.