My energy supplier, Shell, is offering me a fixed tariff for 14 months and I’m tempted to take it.
Like most, I was previously in a bind until I was moved to a variable rate at the beginning of the year.
Currently my energy bill for my three-bedroom semi is £162 a month. The unit rate for electricity is 30.72p/kWh with a standing charge of 43.65p per day.
Warming up: Energy bills will decrease slightly from October 1, but will remain at around £2,000 a year for the average household in the coming months.
For gas, the current unit rate is 7.398 p/kWh with a permanent load of 29.11 p.
With this solution offered by Shell, electricity would be slightly lower at 30.0010 p/kWh, but with a slightly higher permanent load of 44.81 p/kWh.
For gas, it is a slightly higher unit rate of 7.5040 pp/kWh but with a much lower permanent load of 18.28 p. Both are guaranteed until November 30, 2024.
I think variable rate energy deals won’t go down anytime soon. So should I focus or keep holding the fire?
This is Money’s Sam Barker responds: Most households are stuck on variable energy deals regulated by Ofgem’s price cap, as you are now.
This limits the average energy bill to £2,074 a year, and although this is expected to fall to £1,923 on Sunday, it’s not exactly the respite we’re all hoping for.
Households are longing for the return of fixed rate deals that are cheaper than their current exorbitant bills over the life of the deal. The big question for you is: do they offer you one?
The answer is “maybe,” but if you can turn off the gas and electricity, this changes to “probably.” However, this comes with the caveat that no one can be sure how they will affect energy prices in the future, and that’s the gamble of adopting a fixed tariff right now.
Let’s start with some price comparisons.
Right now your energy bill is £1,945.78 a year.
On the fixed rate deal you’re offered, you’d pay £1,903.25 a year – that’s £42.53 a year less than you pay now – albeit for 14 months, not 12.
At first glance, it doesn’t seem like a good deal, although an extra £43 a year is nothing to sneeze at. But this fixed rate could offer you even greater savings than this, for two reasons.
First, energy bills are likely to remain high: standing charges will rise and unit rates will fall slightly over the next year.
Second, this flat rate is very generous when it comes to ongoing rates, which could work in your favor.
This all depends on how energy bill prices evolve over this 14-month period.
Unfortunately, there is no way to be sure of this. Ofgem certainly does not make these types of predictions.
The closest we can get are estimates made by analysts at Cornwall Insight, who have accurately predicted what the price cap will be since energy prices started rising.
Why are energy bills so high?
Since emerging from the pandemic, gas demand has skyrocketed, but supply has struggled to catch up. It has skyrocketed prices and raised the cost of gas and electricity for both households and businesses.
This has been exacerbated by the Russian invasion of Ukraine, which has led to a restriction on gas supplies across Europe.
Cornwall Insight believes energy bills will rise to £2,032.66 in January 2024, then fall to £1,964.47 in April, fall again to £1,917.41 in June and then rise slightly to £1,974.92 in October.
In other words, energy bills will be at their current level for at least another year, if Cornwall Insight is correct, and perhaps until the end of the 2030s.
The fixed rate they offer you would be slightly cheaper than staying at the maximum price for the next 14 months, again assuming Cornwall Insight’s predictions are correct, and we have no way of knowing for sure.
But a fixed-rate energy deal is based on your expected energy usage, although ongoing charges won’t change.
That means if you use less energy than Shell predicts, you could save even more than the £43 a year.
In particular, one feature of your solution could work in your favor. He has very low permanent positions.
Cornwall Insight believes that while overall energy bills will decrease slightly but effectively remain at around the same level as now, within that unit rates will fall but ongoing charges will increase.
So the terms of this solution are already good, as ongoing charges cannot be avoided, while you have some control over the energy you use, within reason.
You currently pay £43.65 a day for fixed electricity charges and £29.11 a day for gas, or £265.57 a year in total.
This is already lower than average, as the usual charge for electricity is 53p a day and 29p a day for gas, for a total of £299.30 a year, although this varies depending on where you live and What meter do you have?
But experts at analysts Cornwall Insight believe the typical standing electricity charge for peak-priced homes could reach 60p a day next summer, with standing gas charges of 30p, so total charge bills permanent ones will amount to £328.50 per year.
This fixed tariff you have been offered has ongoing charges of 44.81p for electricity and 18.28 per day for gas, or a total of £230.27 a year.
So, with gas and electricity usage out of the equation for now, you could save £62.93 a year on your always-on charging bills alone by agreeing to this fixed tariff, which would rise to a saving of £98.23 a year for next summer, if Cornwall Insight is right. – and is clearly more pessimistic about the future of energy bills than Shell.
But if you combine these lower charges with reducing your current average energy usage, then you could save even more, making the solution a very good option.
Another advantage of a fixed tariff energy deal is that it offers security over monthly payments and makes it easier to budget than relying on the whim of a deal subject to Ofgem’s price cap.
Natalie Mathie, energy expert at Uswitch.com, said: ‘Only those on fixed tariffs are confident in knowing how much they will pay over the full term of their agreement, which is usually one year. During that time, customers with standard variable rates will see their bills change four times.
‘A fixed deal at a reasonable price could be a good option for households who want certainty about what they will pay. Fixed rates may be priced similar to or slightly higher than standard variable rates; however, you will have peace of mind that rates will not change.
‘As the energy market remains volatile, it can be difficult to predict whether opting for a fixed deal or sticking with a standard variable tariff will save money in the long term.
‘If you’re thinking about switching to a fixed deal, pay attention to departure fees, which could cost up to £200 per fuel. If you change your mind after the cooling-off period or spot a better deal than the one you want to switch to, you may have to pay to leave.
‘The price you are quoted to pay by direct debit each month is an estimate based on your expected usage and may not end up being the actual cost throughout the year. Remember, if you use more energy, you’ll pay more.’
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