3 Year fixed energy deals
Should you fix your energy prices for the long term and what are the benefits of fixed rate energy? You can't predict future gas and electricity prices so you can't guarantee switching to a fixed price energy tariff is going to save you money.
What does fixed price energy mean?
Your energy tariff is made up of two components, the unit rate and the standing charge. If you have a gas supply as well as an energy supply you'll have a separate unit rate and standing charge for each.
Unit rate per kWh
The unit rate is a price in pence that you pay for each kWh of gas or electricity that you use. There will be two separate rates one for electricity say 14.7 pence per kWh and one for gas which usually much lower say 3.1 pence per kWh.
Daily standing charge
In addition to being charged for each unit (kWh) of energy you use you are also charged a daily standing charge. A standing charge is an amount you pay each day for being connected to the gas and electricity supply. You may pay say 31.2 pence per day as a standing charge for gas and 29.7 pence per day for electricity.
Your daily standing charge is added to your bill regardless of whether you use any gas or electricity. So if you went on holiday for 2 weeks and switched your gas and electricity supply of you would still be charged for being connected to you gas and electricity services.
If you own a holiday home, second home or have a property that is empty for a large part of the year it may be worth considering a no daily standing charge tariff.
What does fixed price energy mean?
Fixed price energy deals are where the price you pay for your daily standing charge and for each unit (kWh) of gas and electricity that you use remain constant. So if the energy plan stated a price of 14.6p per kWh then that would be the price you paid for each unit of energy you used for the duration of the fix. This is usually 12 months, 24 months or 36 months.
Conversely a variable rate tariff can increase or decrease in price.
Should I fix my energy prices?
If you are considering switching to an energy tariff with a fixed price for 1, 2, or 3 years then you should be aware of what that involves and if it is going to cost you more in the long run or save you money.
Fixed price energy costs more
Fixed price energy is more expensive. It costs more because the energy supplier has to hedge against future energy price increases. The longer you fix your energy the more expensive the tariff will be.
Early exit fees
Early exit fees are charged to customers if they choose to leave a fixed term deal before the end of a contract. Some fixed term energy deals do not have exit fees but most do.
In general the longer you fix your energy for the higher the higher the early exit fees will be. For a typical 3 year fixed energy deal you could expect an early exit fee of up to £72 per fuel. So leaving a dual fuel 3 year fixed energy deal could end up costing you £144 in exit fees should you wish to end your energy contract early.
Exit fees are just part of the equation. Fixed energy plans with higher exit fees may also have much cheaper energy prices, so if you were planning on fixing your energy for 3 years the lower energy prices would be a more important factor.
As an example the Morse tariff from the energy supplier Green is fixed for 3 years and has £72 per fuel exit fee. However it is currently the cheapest 3 year fixed rate tariff costing £1061.74 a year or £88.48 a month.
In contrast Shell Energy's 'Energy August 2023' tariff has a cheaper per fuel exit fee of £50 but would cost you £1134.47 a year or £94.54 a month. That's £72.73 a year more expensive than a 3 yer fix from Green but only £25 per fuel cheaper on the early exit fees.
Benefits of fixed price energy
Having a fixed price for your energy can help you budget for gas and electricity costs over the course of a year if you are paying by direct debit. Remember you will use more energy in the winter compared to the summer so your direct debits are usually averaged for the year to give you a fixed monthly price.
Assuming you use about the same amount of gas and electricity every year a fixed price would mean that you would be paying the same every month based on your total yearly bill being divided over 12 equal monthly payments.
Should energy prices drastically increase then you would still be paying the same amount on a 3 year fixed energy deal.
You should however be aware that if you use more gas and electricity over the 3 year fix then your bills will still increase. You may have underestimated your yearly kWh usage or the number of people in your household may increase (a relative moves in with you or you have children) and you will therefore use more gas and electricity in your household. A fixed rate deal cannot account for that.
The downside of fixing your energy
Fixing your energy for a term longer than a year is unlikely to get you the cheapest gas and electricity over the long term. Although the average energy bills are generally increasing year on year the increase does not outpace the savings you can make by switching to a cheaper priced 1 year fix.
Currently the cheapest 3 year fix from Green costs £1061.74 a year whereas the cheapest 1 year fix doing an energy comparison is £818.61 a year from Avro Energy. That's a saving of £243 in the first year by choosing a shorter term fixed rate deal.
The biggest downside to longer term price fixes is that you are likely to pay more even after taking into account the usual yearly energy price rises.
So should I fix my energy for 3 years?
If your priority is cheaper energy then fixing for 3 years or even 2 years is a big no. If you're the sort of person who doesn't like to compare and switch once a year because of the hassle or fear of switching being complicated then you'd be better of using an auto-switching service like Look After My Bills or Switchd that can take care of the comparing and switching for you.
To get the best deal you should compare fixed energy prices for yourself and you could quite easily save yourself over £200 a year on a shorter 12 month fix compared to a longer fixed term energy deal.