When picking an energy tariff, “fixed” is commonly used to provide reassurance. Fixed-rate power contracts provide price consistency while protecting you from the wholesale market’s unexpected ups and downs. But are fixed energy packages the safest option, especially because energy costs can skyrocket or drop overnight?
In this post, we will look critically at fixed energy rates to help you grasp the true value they provide. If you’re debating whether to lock in a rate or remain flexible, this article can help you assess energy alternatives carefully. Visit Business Energy Comparison for personalised business assistance.
What Is a Fixed-Rate Electricity Contract?
A fixed-rate power contract locks in your unit rates and standing costs for a specified period, often 12, 24, or 36 months. This implies that your per-kilowatt-hour (kWh) charge will remain constant, even if power costs skyrocket.
However, “fixed” does not mean “frozen”. Although the unit cost is constant, your energy bills may fluctuate based on how much energy you use. That is where things may get difficult.
Fixed vs. Variable Energy Tariffs
| Feature | Fixed Energy Tariffs | Variable Energy Tariffs |
| Unit Rate | Fixed for the duration of the deal | Can change at any time |
| Standing Charge | Fixed | May change |
| Early Exit Fees | Usually apply | Often none |
| Energy Price Cap Protection | No (but under contract) | Yes (subject to Ofgem price cap) |
| Adaptable to Price Drops | No | Yes |
| Price Certainty | High | Low |
The Appeal: Price Certainty in Volatile Markets
The main advantage of a fixed rate tariff is price predictability. Locking in a set price can give peace of mind during market instability, such as energy crises or global supply energy interruptions.
Many dual fuel customers (those using electricity and gas from the same supplier) choose fixed contracts to prevent the fear of seeing energy bills jump overnight.
What happens when electricity prices drop?
The Catch: Missing Out On Falling Prices
The disadvantage is that if you are locked into a fixed energy tariff, you will not profit from a substantial energy price drop in the wholesale market. Your fixed agreement might become more expensive than a variable tariff.
In 2023, some consumers on a fixed energy plan paid more than those on a typical variable tariff, as costs decreased faster than expected.
That is why planning your fixed-rate contract carefully and examining your current energy supplier’s offers regularly is critical.
Are Fixed Tariffs Truly Cheaper?
That varies. Fixed gas and electricity tariffs provide price consistency but are not necessarily the cheapest energy supplier alternative. Many offers also include exit fees, making it expensive to plandepart if a better bargain becomes available.
Consider the Costs:
Unit Rates: The price per kWh of electricity usage.
Standing Charges: Daily payments are made to connect to the electricity supply.
Exit fees: Charges for exiting your contract early.
Payment method: Paying by direct debit might save costs.
So, even a cheaper fixed tariff may not stay cheap over time.
Who Benefits Most from Fixed Energy Deals?
A fixed tariff might help you manage your budget more predictably if you use medium energy or high-consumption equipment such as a heat pump or EV chargers.
Also, if you’re a current customer nearing the end of your contract, moving to a new energy provider with a fixed deal might keep you from being automatically rolled over to a costly tracker or prepayment rate.
When to Avoid Fixed Price Contracts
Avoid committing to a fixed energy contract if:
· You are preparing to relocate
· You’re approaching the pricing cap level
· You anticipate that energy prices will shortly decline
· You want to keep open for new energy bargains
In such instances, using a variable energy plan may provide additional flexibility.
What about Dual Fuel and Smart Meters?
Dual fuel plans (gas and electricity) with set prices might be handy, although they may not always provide savings. It is best to compare electricity and gas plans independently.
Installing a smart meter can also enhance billing accuracy and allow you to track power use during off-peak hours, making it a helpful tool regardless of tariff type.
The Function of the Ofgem Price Cap
The Ofgem price cap is intended to safeguard customers from standard variable tariffs by capping the amount that energy suppliers may charge. Fixed tariffs are not subject to this price restriction; therefore, rates may be higher than price-capped packages in a down market.
Tips for Switching Energy Suppliers
Thinking about switching energy providers? Here is how to do it smartly:
· Find the greatest energy deals with comparison websites
· In addition to the headline price, consider the standing fee and unit rates
· Consider your energy consumption habits
· Be mindful of exit fees
· Do not forget about your rights as a dual fuel customer
Weighing Risk vs. Reward
Fixed-rate contracts provide consistency, but they are not necessarily cost-effective. Variable tariffs may be better for some since they can save money during a downturn.
What is the most secure route? Keep current, watch the market, and review your power tariffs regularly. Whether you’re a British Gas customer, a new energy supplier, or thinking about switching, deliver energy on your terms, not theirs.
Remember that the same amount of energy supply might cost vastly different amounts depending on how, when, and from whom you get it.
Conclusion
Fixed offers are not universally applicable. They provide a storm shelter but may leave you high and dry in calm weather. Knowing how much energy you consume and how much your present energy supplier charges is the key to achieving actual cost savings.
Do you want to make a better choice? Begin by comparing power tariffs, reviewing unit prices, and being willing to transfer energy providers if it means getting the best energy deals.
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