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Wholesale energy prices are DROPPING. Was/ is fixing wrong?

Wholesale energy prices are DROPPING was/ is fixing wrong?

Wholesale energy prices are DROPPING was/ is fixing wrong?

Four of the big six energy companies have announced price hikes to hit in the next two months, two more are expected to follow, yet the wholesale prices energy companies pay are dropping (see Wholesale rates at year low) – so is it worth locking in now if our prices may fall again?

When wholesale prices are rising, energy companies respond quickly and put their prices up. It’s often said that when wholesale prices are falling, energy companies never respond and put their prices down – yet that isn’t true (though whether they do it with such speed and relish is debatable). As this uSwitch chart below shows, prices have and can move in both directions.

British Gas average annual household bills

Date

Annual Bill Size

1 Jan 2004

£543

1 Jan 2005

£642

1 Jan 2006

£735

1 Jan 2007

£1,002

1 Jan 2008

£821

1 Jan 2009

£1,176

1 Jan 2010

£1,066

1 Jan 2011

£1,096

18 Aug, 2011

£1,286

So, the concept of energy bills dropping after rising should certainly not be discounted. However, over most two year periods – about the time most fixes last – they’re almost always rising. And there is no doubt that over the long run (5-25 years) the infrastructure requirements being put on energy companies means prices will rise.

Yet, in the short run the markets rule, therefore prices can vary radically, so right now the key info is…

Though it’s far from being likely now, if the worldwide economy moves into a double dip recession, which some say the current market turmoil predicts, then demand for oil is likely to drop, and the likelihood of wholesale prices falling rapidly increases."

Is it worth fixing if prices may drop?

For six months we’ve been saying everyone should urgently CONSIDER fixing, and the same holds true now. The key here is we’re saying check whether fixing is right for you – not a blanket – everyone should fix.

Much of this info is already in the fixing FAQ part of the cheap energy guide but I wanted to spell it out in the light of the current wholesale price falls.

  • Fixing should be seen as an insurance policy

    If you are worried about price hikes, urgently consider locking into a fixed tariff, which guarantees rates for a set time such as 18 months to effectively insure against your prices rising.

  • To decide if it’s worth it, first see how much you’ll pay

    To find out whether it’s right for you – you first need to know how it compares to what you’re currently paying (see compare energy tariffs for a full list on how to do it).

  • Many can fix and save £150/year over their PRE-hike prices.

    If like millions you’re on an energy company’s STANDARD tariff, you may be able to fix and cut your bills by £150 a year. Now to clarify, that’s £150 a year over the pre-hike prices, so it could easily be a £300+ saving compared to the post hike prices.

    In this case, even if energy companies were later to cut their prices back down you’d still likely have saved substantially – so even if they did cut prices – to think you would’ve been better on your old tariff is unthinkable.

  • If you don’t get a cheap fix this could all be baloney.

    I’m always slightly frustrated that while my suggestion is to ‘compare to find your cheapest fix’, I meet people who say: "Thanks for your help I called my energy company to fix". It makes me want to groan.

    That isn’t the point – it’s not about locking in at all costs, it’s about locking in on the cheapest fix. If you have locked in without doing a comparison, there is a chance you’re paying a premium even over future rates to fix, which isn’t sensible.

  • What if the comparison shows it costs MORE to fix?

    This changes the landscape. If you’re already on a super-cheap discount tariff and need to pay more to fix then it’s nowhere near as certain. Although do factor in the definite British Gas, SSE and Eon price rises hitting in the next month and predicted rises for Npower and EDF.

    Those increases are around 10%-20%. So if you’ll pay more than that on a fix, it’s likely to be best to stay put, unless there might be yet another round of hikes quite soon after this one.

    If the gap’s less, balance savings now against price certainty – factoring in the definite future rises, but also the chance that after that prices could rise further OR fall back again. Here there is less certainty of a saving so it is far more about your attitude.

  • Fixing isn’t about ‘it will be the cheapest option’, it’s about ‘it will be a definite price’.

    The concept of fixing is not primarily about trying to beat the markets and win overall. For most, it is about peace of mind of knowing your bills CAN’T rise. You need to balance out the worst case and best case scenarios.

    Of course it’s possible in the future you’ll look back with hindsight and prices will have dropped after the rise, and you may have been able to beat the cheapest fix with a super-cheap online tariff (though as I explain below, in that case just ditch your fix).Yet this risk must be balanced against prices not falling, or even rising again and you having missed out on the chance to freeze prices at the current level.

    For most people running tight family budgets it’s better to ensure there’s no risk of hikes, paying at a level you can afford, than to play the market in the hope of gains if prices drop.

  • If energy prices crash, the only risk is the exit penalty.

    Let’s take the most extreme scenario that could work against fixing; that after this round of 20% ish price hikes, energy prices then fall by 50% – so you’ve locked in at a rate that’s too high.

    Actually all that happens here is you pay the exit penalty of around £30 to £50 per fuel to leave – an amount that should at the minimum be covered for most people by the savings in the short term due to the initial price hike.

    In a way fixing is balanced in the consumers favour (provided you get a good price). Your lock-in is absolute, the energy companies can’t ditch you from it if things go against it, but if it’s wrong for you – you just pay a fee to leave.

  • The last time prices rose then fell – people who fixed were still the winners.

    In early 2008, wholesale energy prices began jumping just like now, cheap fixes were being pulled just like now, so we were again then suggesting people consider capping.

    Then British Gas set a trend followed by others, announcing its biggest price rise EVER: gas UP 35%, electricity UP 9%. Further rises were expected the following January, yet the recession roller-coaster actually meant rates were then cut by 10%, although this still left most prices higher than when people capped.

    This meant everyone who capped or fixed their bills got peace of mind and according to a comparison industry report in February 2009: "Households that took out a fixed rate plan in July 2008 are currently paying £143 a year less on average than households on standard plans" – so even after that scenario people had still gained – though of course this can’t be used as a prediction.

So in summary, if you want peace of mind, then getting a cheap fix is still absolutely the right thing to do. 

There is however a slim chance that in hindsight it won’t end up having been the very best deal for you – so you need to balance the risk that you’d have to pay exit penalties to leave, against the guaranteed protection from any hikes. (For what to do if you don’t want to fix, but still want to save money, see the Cheap gas & electricity guide.)


  • smoris92

    Thank you, Martin.Your article is quite detailed and interesting.

    Moving Company

  • smoris92

    Thank you, Martin.Your article is quite detailed and interesting.

    Moving Company

  • smoris92

    Thank you, Martin.Your article is quite detailed and interesting.

    Moving Company

  • smoris92

    Thank you, Martin.Your article is quite detailed and interesting.

    Moving Company

  • Anonymous

    I fixed in April but Eon still increasing my price so the fixing price is no guarantee. 

  • Anonymous

    I fixed in April with Eon but they are still increasing my price in Sept so the fixing is not guaranteed. 

  • Anonymous

    The on going saga of fuel suppliers is really making me frustrated! There is no transperancy or honesty..I am confused with all the ‘jargon’…nothing is clear cut..its like being in a jungle, and only the wisest will make it out !
    I have found also that no-one wants to help make a decision when asked for help…what a mess!!!…in 2011 we are STILL in the dark ages!!!

  • Anonymous

    Your blog is great but my energy company (Scotish power) is not so much increasing thr unit rate as doubling the standing charge! as a low user we will be paying a lot more even if we reduce our consumption!

  • http://www.facebook.com/people/Sue-Lyons/637997521 Sue Lyons

    Very helpful, thank you. One extra question, I have trouble using price comparison websites as my gas tariff for Southern Electric is not listed on the drop-down menu of choices that I am given. Can you help me find one that allows comparisons with the General Saver tariff? Thanks.

  • Anonymous

    It is not just fixed tariffs were energy companies have penalities, in fact penalites are coomonplace, the norm. Penalties should be banned, they make a complete mockery of the supposed market place. Our glorious government and ofgem are a total joke, I wish energy was taken back into public ownership

  • Anonymous

    having just done this exercise, I concluded that the fuel price rises would have to exceed 20% p.a to make the 3 year fixed price to b e advantageous over the 1 year fixed price, which in turn although dearer than the unfixed price was ‘cheap’ enough to accept as a fix.

  • Anonymous

    thank you Martin .that was a good report on fixing your buying price for gas+electricity. however in anticiaption of prices falling marginally it may be worth considering buying a capped price which effectively protects you from an increase in prices while allowing you to participate in a lower price if the price for gas does indeed fall. do you have a comaprison for this scenario?
    thanks 

  • http://www.facebook.com/marek.krajecki Marek Krajecki

    thanks for that, soon going to look for new energy and gas sup. just now on fix with SP , will use casback too :)

  • Nathan Brown

    No offense, but I remember a headline in the 13 July Email Money Tips which read “FIX NOW OR STICK”…is that really CONSIDERING? No need to backtrack now. Gas prices will only continue to go up and the cost of renewables will force electricity up, so people will still be winners even in the 12 month fix.

  • http://twitter.com/MartinSLewis Martin Lewis

    Hi Nathan

    I’m a little confused by this – did you read further down that particular email?

    The exact point of that email was to consider it out not necessarily do it – it meant either fix now (ie if you’re going to fix do it asapnow) or if
    not fixing stick ie don’t do anything.

    The sub-headline said “Urgent! Rumour the cheapest fix is likely to be pulled
    soon | EVERYONE check now”  (and indeed it was pulled).

    The email then went on to say (i can’t do the formatting here but the first phrase of each was bolded)

    Fix now if you can’t afford rises. A fix
    guarantees your rate won’t rise for a set period, eg, two years. Millions
    on standard tariffs can typically save £150+ a year with the cheapest
    fixes, even before price hikes – and get added insurance against price
    rises. While online ‘variable’ deals are still cheaper now, just an 8%
    hike in prices, far less than predicted, would see them more expensive
    than fixes. Full ‘fixing FAQ’ in the Cheap Gas & Elec
    guide.

    Rumour!
    Cheapest fix likely to be pulled. We’ve
    heard one of the current cheap fix tariffs may be pulled any day. So if
    you’re going to fix, speed is crucial (as this isn’t about just fixing,
    but fixing cheaply).
    If not fixing – STICK for now. If you don’t want to or
    can’t fix (eg, on pre-pay meter or super cheap variable tariff, so
    fixing’s too costly) hold fire and wait until all the big suppliers have
    hiked prices to compare. Otherwise you could just be jumping from the frying
    pan into the fire by moving to a provider who then hikes prices even more.

     

     

  • Robert Bramham

    If you are on a fixed tariff, as I was with B. Gas, speaking to one of their reps. about “penalties”, he suggested I switch to their standard rate tariff, then switching to another supplier would avoid these costs, this I did and saved £100.00 (£70 gas, £30 electric). It is worth talking to your supplier.

  • Anonymous

    currently with E-on on dual fuel Saveonline 4 and have just been notified on the price increase 22.6% on electricity which is in line with Martins comments however Gas is going up 46.1% from 5.051p/kWh to 7.381 p/kWh both excluding VAT. How can anyone justify such an increase and is there nothing we can do about such profiteering

  • http://www.facebook.com/people/Drahcir-Yecal/1128031573 Drahcir Yecal

    Here’s what my lot Hydro-Electric (part of Scottish & Southern Energy) are doing with their prices:
    Gas: Unit price up by 22%. Standing charge up by 8%
    Electricity: Unit price up by 7%. Standing charge up by 25%
    What’s their game? Why the discrepancy in increases between gas & electric standing charges & unit prices?

  • Anonymous

    EDF is the same.  After finishing my discounted term I looked into their new scheme only to find the standing charge a lot higher than the standard tariff I am now on.  As a low user I too would end up paying more so have decided to stick for the moment!

  • Anonymous

    Point regarding Penalties….
    Use a comparison site that offers ‘cash back’ for switching…that usually  covers the cost of the penalty.
     OR…. If you move to a different tariff with your current supplier they often don’t charge the penalty. 

  • Anonymous

    Points regarding Penalties…
    If you want to change tariffs with your existing supplier they will often waive the penalty charge.
    If moving suppliers use a comparison site that offers ‘cash back’. This usually covers (or helps toward) the cost of  the exit penalty.

  • Anonymous

    If Tesco are knocking 5% off a litre if you make a £50 purchase in their shop, you can bet your bottom dollar that fuel prices are about to fall!

    Mike Dowding

    Bournemouth.

  • Anonymous

    SSE have a price fix 7 until 2014, but have now added standing charges which I haven’t got on my current fix with them. These are 19.33p per day for electricity and 32.7p per day for gas and even though they are reducing the prices per unit for electricity and gas its a tremendous increase in cost to fix again. For example it would cost me another £396 per year

  • Anonymous

    Just fixed with Scottish Power until 2015.  Was with EDF on a standard tarrif.
    I did a big spreadsheet using our whole year of electricity consumption for Peak and Eco7, comparing a large number of fixed tarrifs from various suppliers.
    We don’t have mains gas in our area and have quite a heavy electricity consumpion.
    Scot Power offer the tarrif in 2 forms:
    A daily fixed charge and then 2 rates for peak and Eco7, or
    A 2 stage pricing for peak where your first 225 units per quarter cost more and thereafter peak costs less, Eco7 same cost as above.
    Modelling the 2 tarrifs….the overall cost was EXACTLY the same overall (well with 50p per ann)
    For us the Scot Power deal was a fraction more expensive then our current standard EDF (about £15 pounds a year more) but obviously fixed until 2015, and exit charge of about £37 if we want to cancel for a better deal at some point, almost a free option.

    PS Don’t bleat about gas prices!  Try paying for bulk LPG!!  :(

  • Anonymous

    Just fixed with Scottish Power until 2015.  Was with EDF on a standard tarrif.
    I did a big spreadsheet using our whole year of electricity consumption for Peak and Eco7, comparing a large number of fixed tarrifs from various suppliers.
    We don’t have mains gas in our area and have quite a heavy electricity consumpion.
    Scot Power offer the tarrif in 2 forms:
    A daily fixed charge and then 2 rates for peak and Eco7, or
    A 2 stage pricing for peak where your first 225 units per quarter cost more and thereafter peak costs less, Eco7 same cost as above.
    Modelling the 2 tarrifs….the overall cost was EXACTLY the same overall (well with 50p per ann)
    For us the Scot Power deal was a fraction more expensive then our current standard EDF (about £15 pounds a year more) but obviously fixed until 2015, and exit charge of about £37 if we want to cancel for a better deal at some point, almost a free option.

    PS Don’t bleat about gas prices!  Try paying for bulk LPG!!  :(

  • http://pulse.yahoo.com/_SVXHYNWYGTYWTKBX5C4OV7EFJA Richard

    One other thing, if they say ‘FIXED PRICE’ for 12 months can they then change this price up ?