Should I fix my energy prices?
Most of the energy tariffs available to UK households are either variable rates or fixed. Choosing between a fixed rate deal where prices are fixed for a period (usually 1 to 3 years) or where your rates are variable and the unit price can change will depend on which deal you choose.
Not all fixed deals are the same and not all variable tariffs are the same so let's clear up a few points before you head on over to find the cheapest fixed or variable deal.
Fixed vs Variable rate tariffs
The main difference between fixed and variable that applies to all tariffs is the fixed rates have a set daily standing charge and kWh unit rate for gas and electricity whereas a variable rate can change.
By fixed we are only talking about the rate you are charged each day (daily standing charge or membership fee) and the unit price for each kWh unit of gas or electricity you use. It does not mean your monthly payments are fixed or that you can use as much energy as you want and pay a flat fee.
It's often easier to think of it in terms of shopping at a supermarket if that supermarket sold gas and electricity. With fixed pricing a tin or packet of gas or electricity would stay the same price but you would spend more if you loaded your trolley up with lots of them. That tin or packet would remain at a fixed price for the term of your contract but it could change under a variable rate ie the supermarket increases the price of a packet of gas or tin of electricity.
Fixed rates and exit fees
So fixed rates are always fixed and variable rates can vary but fixed rate deals are often accompanied by early exit fees. An early exit fee is usually charged per fuel so a £30 fee per fuel (gas or electric) or £60 for a dual fuel customer (gas and electric). The exit fee would be charged should you decide to leave to switch to another deal before the end of your fix.
Fixed rates usually have an exit fee as your supplier has to buy your energy up to 3 years in advance. If you leave early your supplier is still obliged to buy and pay for that energy they have purchased on your behalf. The exit fee helps cover the cost of a customer leaving and at the same time acts as a discouragement for the customer to leave early.
Variable rates do not have early exit fees and more and more fixed rate deals are now fee free.
How long should I fix my energy prices for?
People tend to fix their energy prices because they are worried about big future price rises and they often don't want to have to worry about fixing again for a while so it satisfies two problems.
The longer you fix your energy for the higher the rate you will be charged and usually a higher early exit fee will be charged.
In general a short term fix of 1 year gives a good balance between security and cost and if you choose a 12 month fix with no exit fees then you get the best of both worlds. If prices fall and really cheap deals appear you are free to switch to a cheaper deal under a no early exit fee fixed price tariff.
If you are set on switching to a long term fixed energy deal then I'd suggest you seriously consider making the effort to compare deals and switch yourself in order to ensure you are never overpaying or if you really can't be bothered then use an auto-switching service such as Look After My Bills who will do the comparing and switching for you.
Cost of fixed energy vs Variable
As energy prices change all the time and many suppliers tend to release a new tariff every month the only way to know how good a deal you are getting is to compare at the time you are thinking of switching. However to illustrate with prices right now I've added a table to show the current costs of tariffs for fixed and variable and any exit fees to look out for.
|Supplier||Tariff Name||Fixed or Variable||Exit Fees||Monthly Cost|
|NEO Energy||NEO 4.1||Variable||None||£72.94|
|Outfox The Market||Spring 21 Variable||Variable||None||£75.86|
|Hub Energy||HUB Smart Choice Tariff 12 April 22 v1||1 Year Fix||£30||£76.66|
|Avro Energy||Simple and Super12M||1 Year Fix||None||£77.37|
|Utility Point||Just Up 21 12M Fixed Wk09||1 Year Fix||£36||£77.91|
|Goto Energy||Standard Variable||Variable||None||£78.96|
|Green||Ramsay||1 Year Fix||£36||£79.56|
|Avro Energy||Simple and SuperSwitcher||1 Year Fix||None||£79.60|
|People's Energy||People's Energy Fixed Super Tariff Mar 21||1 Year Fix||£30||£79.61|
You can see from the table of the ten cheapest available tariffs at the time of writing. The cheapest deals tend to be variable with the lowest price at £72.94. The cheapest fix is £76.66 a month so around £45 a year more expensive for the average UK household or just over 2 weeks worth of energy bills. It also comes with a £30 exit fee so that's £60 for a typical dual fuel customer.
The lowest cost fixed deal without exit fees costs £77.37 from Avro Energy, so for an extra £8.52 a year you can get a cheap fixed deal where you can leave at any time without having to pay a £60 dual fuel exit fee.
If you want to fix for longer, say 2 years, the best deal will cost you about £86 a month which is about £156 a year more expensive than the cheapest variable rate.
|Supplier||Tariff Name||Fixed or Variable||Exit Fees||Monthly Cost||Cost Per Year||Difference|
|NEO Energy||NEO 4.1||Variable||None||£72.94||£875.28||£0|
|Hub Energy||HUB Smart Choice Tariff 12 April 22 v1||1 Year Fix||£30||£76.66||£919.92||+£44.64|
|Avro Energy||Simple and Super12M||1 Year Fix||None||£77.37||£928.44||+£53.16|
|Green||Lamont||2 Year Fix||£36||£85.89||£1030.68||+£155.40|
|Bristol Energy||BE Super Green April23||2 Year Fix||£0||£87.89||£1054.68||+£179.40|
|Green||Marsh||3 Year Fix||£72||£88.78||£1065.36||+£190.08|
|Green Energy UK||Sparkling 2023||3 Year Fix||£0||£118.71||£1424.52||+£549.24|
To give you an idea of the costs to help you decide if you should fix I've put together the lowest priced tariffs currently available to cover each of the types of fixes from 1 to 3 years with and without exit fees so you can compare to the current cheapest variable rate tariff.
As you can see our starting point is our cheap Neo variable deal costing £875.28 a year and as a variable rate tariff incurs zero exit fees.
If you were to fix for 1 year the cheapest overall fix would cost £44.64 a year more than our variable rate or £53.16 if you chose a 1 year fix with no exit fees. So you pay about an extra £50 a year for peace of mind knowing your rates will not change for 12 month.
For a 2 year fix the cheapest tariff would cost you an extra £155.40 a year more or £179.40 if you chose the cheapest 2 year fix without exit fees. It does seem a lot more expensive but energy prices tend to increase over time so the difference may be less on your second year (or even negative) as the variable rate increases.
Take this further to a 3 yeast fix and with the cheapest available deal with hefty £72 per fuel exit fees you will be paying £190.08 more per year to make sure your costs do not go up for 36 months.
There was only one 3 year fix with no exit fees and that was from Green Energy UK which came out at £549.24 extra a year for a 36 month fix with no exit fees. In this context looking at fixed vs variable then it's unlikely you would pay more than £500 a year extra for peace of mind. Green Energy UK however is the greenest energy supplier that specialises in the greenest of green energy including 100% green gas which is more expensive. However I've included them in this comparison simply because no one else offers a 3 year fix with no exit fees.
So you can see that long term fixes do not make sense for most people, especially if you are looking for the cheapest deal. It's worth looking at yearly fixes and especially 1 year fixes with low or zero exit fees to give you the option to switch should prices on the energy market plunge.