Fixed energy deals explained

Fixed energy deals offer a strategic way to manage household bills, providing a set unit rate for electricity and gas for a specific contract period. This approach can bring stability and predictability to your energy costs, freeing you from the anxiety of fluctuating market prices. It is a proactive move that puts you in control.

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What is a fixed energy deal?

A fixed energy deal, often called a fixed tariff, is a contract with an energy supplier where the price you pay per unit of electricity and gas remains constant for the duration of the agreement. This means the unit rate (pence per kilowatt-hour, or kWh) for your energy consumption and the daily standing charge are locked in, regardless of market changes.

Understanding fixed tariffs

Choosing a fixed tariff means you are protected from potential price increases, offering a clear view of your energy outgoings. It is a straightforward way to budget, as your costs per unit will not change. However, if wholesale energy prices fall significantly, you might pay more than those on variable tariffs.

Fixed unit rates and standing charges

With a fixed energy deal, both your unit rate and your daily standing charge are set for the contract term. The unit rate is what you pay for each kWh of electricity or gas you use, while the standing charge is a fixed daily fee that covers the cost of supplying energy to your home, regardless of how much you consume. This dual-fixed approach provides comprehensive price certainty.

Contract length and exit fees

Fixed energy deals usually last between 12 and 18 months. This contract length provides a defined period of price stability. However, if you decide to leave your fixed deal before the end date, you may incur exit fees. These fees are specific to each tariff, so it is crucial to understand them before committing.

Pros and cons of fixed energy deals

Deciding on a fixed energy deal involves weighing its advantages against potential drawbacks, especially given the dynamic nature of the UK energy market.

The benefits of price certainty

The primary benefit of a fixed energy deal is the certainty it brings to your household budget. Knowing your unit rates and standing charges will not change for usually between 12 and 18 months allows for predictable budgeting and protects you from sudden price hikes. This stability can significantly reduce financial anxiety, giving you more control over your spending.

Potential drawbacks and market fluctuations

While fixed deals offer protection, they also mean you will not benefit if wholesale energy prices drop, potentially leaving you paying more than customers on variable tariffs. Ofgem's energy price cap, which is reviewed quarterly, directly affects variable tariffs, meaning these can fluctuate more frequently than fixed rates.

Comparing fixed vs variable tariffs

The choice between fixed and variable tariffs depends on your risk tolerance and market outlook. Fixed tariffs offer stability, while variable tariffs, typically subject to Ofgem's price cap, can change more frequently, reflecting current market conditions. Historically, fixed tariffs have often been more expensive than the price cap, but they offer peace of mind against unexpected increases.

Is a fixed energy deal right for you now?

The decision to opt for a fixed energy deal depends on your personal circumstances and your view of the current energy market.

Assessing the current UK energy market

The UK energy market is subject to various influences, including global events, wholesale prices, and regulatory changes. Ofgem's energy price cap plays a significant role, setting a maximum price for each unit of gas and electricity for customers on standard variable tariffs. This cap is reviewed every three months, meaning variable tariffs can change frequently. When considering a fixed deal, it is wise to assess whether current fixed rates offer a worthwhile premium for stability over the prevailing price cap.

Factors to consider before fixing your price

Before committing to a fixed deal, consider your household's typical energy usage. The average UK home uses around 2,500 kWh of electricity and 9,500 kWh of gas per year1. Understanding your consumption helps you evaluate the total cost of a fixed tariff. For example, understanding your air source heat pump running cost can significantly impact your overall energy bill. Also, review your financial budget and how much you value predictable outgoings versus potentially lower, but more volatile, costs. Do not forget to check the contract length and any exit fees, as these can impact your flexibility.

When fixed deals offer the most value

Fixed deals tend to offer the most value when energy prices are expected to rise or when you prioritise budget certainty above all else. If you are concerned about market volatility and prefer to lock in your costs for a set period, a fixed deal can be a prudent choice. It is a strategic move to take control of your energy spending, rather than simply reacting to market changes.

What happens when your fixed energy deal ends?

The end of your fixed energy deal does not have to be a surprise, nor should it lead to unnecessary costs.

Your supplier's obligations

Energy suppliers are legally required to inform you when your fixed deal is ending, typically between 42 and 49 days before the contract concludes. They must also present you with new tariff options, including their cheapest available deals, to help you make an informed decision about your next energy plan.

Options for your next energy plan

When your fixed deal approaches its end, you have several options:

• Renew with your current supplier: You can choose another fixed or variable tariff offered by your existing provider.
• Switch to a new supplier: You are free to compare deals across the entire market and switch to a new provider. This is often the best way to find a competitive rate.
• Do nothing: If you do not choose a new tariff, your supplier will automatically roll you onto their default Standard Variable Tariff, which is typically covered by Ofgem's price cap.

Avoiding the default tariff trap

Allowing your fixed deal to automatically roll onto a Standard Variable Tariff can sometimes mean missing out on better deals. While the Standard Variable Tariff is protected by the energy price cap, it might not be the most economical option available. By actively engaging with your options when your fixed deal ends, you can avoid this "default tariff trap" and continue to make a "power play" for your energy costs.

How to choose the best fixed energy deal

Choosing the right fixed energy deal involves careful comparison and attention to detail.

Key factors to compare

When comparing fixed energy deals, look beyond just the headline price. Consider the unit rates for both electricity and gas, the daily standing charge, and the overall estimated annual cost based on your typical usage. Pay close attention to the contract length - usually between 12 and 18 months - and whether it aligns with your preferences for stability. The air source heat pump efficiency of your heating system, for instance, can greatly influence your overall energy consumption and thus the total cost of any tariff.

Checking for hidden costs

Always scrutinise the terms and conditions for any potential hidden costs. The most common "hidden" cost is the exit fee, which can apply if you leave the contract early. These fees are tariff-specific, so factor them into your decision, especially if your circumstances might change during the contract period. An illustrative exit fee is £50 per fuel.

Making the switch to a new provider

Switching energy providers in the UK is a straightforward process. Once you have chosen a new fixed energy deal, your new supplier will handle most of the transfer, typically completing the switch within up to 5 working days. You will not experience any interruption to your energy supply during this time.

Choosing a fixed energy deal is a proactive step towards greater financial control and predictability. Fuse Energy empowers you to make this 'power play' with confidence. Our 24/7 human customer support is always on hand to assist you, whether you are comparing options, switching, or planning for the end of your fixed term, ensuring peace of mind throughout your energy journey. Click here to switch to Fuse Energy today.

References

1. Ofgem. Review of typical domestic consumption values