My energy supplier Shell is offering me a fixed tariff for 14 months, which I would like to commit to.
Like most, I was previously on a fixed rate until I was switched to a variable rate earlier this year.
Currently my electricity bill for my three-bed motorhome is £162 per month. The standard price for electricity is 30.72 p/kWh with a basic charge of 43.65 p per day.
Things are heating up: energy bills are expected to fall 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 price is 7.398 p/kWh with a basic charge of 29.11 p.
With this fix offered by Shell, the price of electricity would be a slightly lower 30.0010p/kWh, but with a slightly higher base charge of 44.81p.
Gas has a slightly higher standard price of 7.5040 pence per kilowatt hour, but with a significantly lower basic charge of 18.28 pence. Both are guaranteed until November 30, 2024.
I don’t think variable rate energy contracts will fail anytime soon. So should I lock myself up – or keep firing?
Sam Barker from This is Money replies: Most households are locked into variable energy contracts regulated by the Ofgem price cap, like you are now.
This limits the average energy bill to £2,074 a year, and although this is set to fall to £1,923 on Sunday, it’s not exactly the reprieve we’re all hoping for.
Households are longing for the return of fixed-rate contracts that are cheaper over the term than their current exorbitant bills. The big question for you is: Will you be offered one?
The answer is “maybe,” but if you can reduce your gas and electricity usage, the answer changes to “probably.” However, this comes with the caveat that no one can be sure how energy prices will develop in the future, and that is the risk of choosing a fixed price right now.
Let’s start with some price comparisons.
Currently your energy bill is £1,945.78 per year.
For the fixed price offered to you, you would pay £1,903.25 per year, which is £42.53 per year less than now – but for 14 months, not 12.
At first glance it doesn’t seem like a particularly good deal, although £43 more a year is nothing to sneeze at. However, this fixed price can potentially offer you even greater savings for two reasons.
Firstly, energy bills are likely to remain high as base charges rise and unit prices will fall slightly next year.
Secondly, this fixed-price plan is very generous in basic fees, which could work in your favor.
All of this depends on how energy bill prices evolve over this 14 month period.
Unfortunately, there is no way to be certain about this. Ofgem certainly does not make such a prediction.
The best we can come from are the estimates from analysts at Cornwall Insight, who have been predicting exactly what the price cap will be since energy prices started rising.
Why are energy bills so high?
Since the end of the pandemic, demand for gas has skyrocketed, but supply has struggled to catch up. It has driven up prices and increased 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 shortage of gas supplies across Europe.
Cornwall Insight expects energy bills to 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, if Cornwall Insight is correct, energy bills will remain at the levels they are now for at least another year and possibly until the late 2030s.
The fixed price offered to you would be slightly cheaper than staying at the price cap for the next 14 months, again assuming Cornwall Insight’s predictions are correct – and we can’t say for sure.
However, a fixed price energy contract is based on your projected energy consumption, although the base charges do not vary.
This means that if you use less energy than Shell predicts, you could save even more than the quoted £43 a year.
One feature of your solution in particular could work in your favor. It has very low basic fees.
Cornwall Insight expects that while overall energy bills will fall slightly, they will remain virtually the same level as now, unit prices will fall over this period but base charges will rise.
So the conditions of this solution are already good, since basic charges cannot be avoided, but you have, within reason, some control over the energy you use.
Currently you pay 43.65 per day for the basic charge for electricity and 29.11 per day for gas, for a total of £265.57 per year.
That’s already lower than average, as the typical basic price for electricity is 53p per day and 29p per day for gas, for a total of £299.30 per year. However, this depends on where you live and your meter.
However, experts at analyst firm Cornwall Insight believe that the typical basic electricity price for households under the price cap could reach 60p a day by next summer, while the basic price for gas is 30p, bringing the total basic cost to 328p could amount to £.50 per year.
The fixed price offered to you includes base charges of 44.81p for electricity and 18.28p per day for gas, for a total of £230.27 per year.
So, ignoring gas and electricity usage for now, you could save £62.93 a year on your basic charges alone by using this fixed price. By next summer the saving could rise to £98.23 a year if Cornwall Insight is right – and it is significantly more pessimistic about the future of energy bills than Shell.
But if you combine these lower base costs with a reduction in your current average energy consumption, you could save even more, making the solution a very good option.
Another advantage of a fixed price energy contract is that it offers certainty over monthly payments and makes budgeting easier than committing to a deal subject to the Ofgem price cap.
Natalie Mathie, energy expert at Uswitch.com, said: “Only those on fixed tariffs have the peace of mind of knowing what they will pay for the full term of their contract, which is usually one year.” During this time, bills change from customers with variable standard tariffs four times.
“A low-cost fixed contract could be a good option for households who want certainty about what they will pay.” Prices for fixed tariffs can be similar to or slightly higher than standard variable tariffs. However, you can rest assured that rates will not change.
“As the energy market continues to be volatile, it can be difficult to predict whether opting for a fixed deal or sticking with a standard variable tariff will save you money in the long term.”
“If you’re considering switching to a fixed price, be aware of any exit fees, which can cost up to £200 per fuel.” If you change your mind after the cooling-off period or find a better deal you want to switch to, you must possibly paying for vacation.
“The price you pay by direct debit each month is an estimate based on your forecast usage and may not reflect the actual cost for the whole year.” Remember: the more energy you use, the more you pay She.”
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