What to do if your energy supplier offers you a fixed-rate tariff

Last week, energy regulator Ofgem announced new increases in the price cap from October.

Under it, households on standard variable tariffs will see their bills rise to an average of £3,549 – or £3,608 for those on a prepayment meter.

My phone started ringing at 7am on the morning of the announcement. It hasn’t stopped ringing since. Everyone’s asking the same question: how are people going to afford their bills from October?

Just to compound things, the mind-boggling projections for future price rises are terrifying people.

People are desperate for practical, realistic solutions, but the options on the table are not particularly practical, or realistic.

One option being offered to households is to fix their energy deal. But will fixing safeguard you from next year’s rises or could you actually end up paying more? Here’s an overview of the situation – and my view.

How does fixing your bill work?

In normal times, fixing a price for energy makes sense. Knowing you’ve agreed a monthly rate that you can afford to pay that’s more or less in line with your usual energy consumption can insulate you from the typical price fluctuations that occur over a year or two in the energy market.

But the world has changed dramatically in the last year and fixing is no longer the ‘safe’ option.

Recently, I’ve heard from people who have been offered limited time deals on energy price fixing. The deals are astounding.

If you were paying £1,700 this time last year for your energy and suddenly you’re offered a fix for £4,500 for a year, you know that’s not a good deal. But with some projections of energy prices for the average family creeping over £6,500 by April 2023, many are seriously considering these deals as the answer to the crisis.

The problem is we simply don’t know what the future holds. I’m deeply concerned that some people will panic and sign up to deals because they are worried about not being able to afford further price rises – even though the fixed prices they are being offered are neither feasible nor affordable.

But don’t be rushed in to anything. Do your calculations before taking up any fixed deal.

Five things to bear in mind before getting a fixed deal

There are several things you need to weigh up.

1. Further government action could be launched

A new Prime Minister is about to be announced and it is hoped that new support will follow once they come into office. This could be anything from nationalisation of the energy market to windfall taxes.

If you fix, and new measures come into place, energy prices could drop and you may find yourself locked into a much more expensive deal.  

2. Expensive exit fees could make it pricey to leave a fix early

Exit penalties – the price you pay for breaking a contract early – used to be relatively manageable. But these fees are on the up with some providers charging hundreds of pounds to leave a contract mid-term (dual fuel).

Exit fees are under the microscope at the moment, with the telecommunications industry being told to waive them for people who are struggling financially. For now though, exit fees do apply in the energy sector.

3. Energy discount schemes could bring variable rates down

The National Grid is drawing up a new scheme that will pay households to cut down their energy usage during peak times – typically between 5pm and 8pm in the evening.

The payments aren’t really going to make a huge dent in the cost of energy bills, but it’s possible that the energy industry may come up with other alternatives that could significantly reduce the cost of bills.

This shouldn’t preclude people on fixed-rate deals from also benefiting from these schemes, but there remains the possibility the energy industry itself might act collectively to force the price cap lower. We simply don’t know how that will affect people on a fixed deal.

4. Future projections are not set in stone

If you’re basing your decision to fix your energy bill on 2023 projections, then be aware that just because previous estimates were correct, it doesn’t mean that this is what the future will hold.

Some of the analysts I’ve spoken to have expressed scepticism about some of the 2023 estimates. Ofgem itself has said: “The wholesale market continues to move extremely quickly so no forecast for next year is at all robust at this stage, and will therefore have very limited value, especially for consumers who must always be the main priority.”

The truth of the matter is the energy wholesale market is incredibly complex and a wide range of disparate factors affect pricing.

5. Watch out for fraudsters – if it’s too good to be true, think twice

Scammers are offering people suspiciously cheap energy fixes, either by purporting to be from your energy firm or by acting as an energy broker to get you a good deal.

You pay your monthly bill to the scammer who then pays the energy firm. Only no payments are made, leaving you doubly in debt.

Be exceptionally wary if anyone cold calls you (or knocks on your door) offering cheap energy fixes. 

How to calculate what’s best for you

Calculating whether a fix is a good deal is incredibly complicated. As a very basic rule of thumb, if you are offered a year-long fix that means you are paying no more than 130% of your current price-capped tariff, then it might – might – be worth considering. We’ve broken this down for you.

If you are contacted by your energy provider about fixing an energy deal, then don’t feel panicked into agreeing.

Ask the supplier to email or post you the information so you’ve got time to think about the deal and seek advice. Don’t forget to ask how much you will pay to leave the deal early too.

What if I can’t afford to fix my bill?

If you can’t afford the energy price rise – now or in the future – then take 15 minutes to put together a basic budget covering the money you have coming in each month versus what you have to pay out.

If you don’t have enough money to cover your outgoings – or you are left with little to cover you for emergencies – you meet the definition of financial difficulties.

According to Ofgem’s regulations, your energy provider should come up with a tailored plan to help you. This can be anything from a payment plan to a bill reduction. See full lowdown of the help available.