Fixed price energy tariffs: Is fixed rate energy right for you?
22 October 2021 | OVO Energy
Fixed rate energy tariffs (also known as fixed price plans) are a type of energy plan that offers customers stable prices. Here, we’ll explain a bit more about what they are, how they work, and why you might choose one.
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What is a fixed-rate or a fixed-price tariff?
There are two types of energy tariff – a fixed energy tariff (also known as a fixed-price or fixed-rate plan) and a variable energy tariff.
A fixed-rate tariff sets what you pay per kWh. By the way, a kilowatt hour (kWh) is the unit used to measure energy, just like how kgs measures weight. This is locked at the same price until the end of your contract. Basically, it doesn‘t go up or down if the wholesale energy market (where suppliers buy their energy from) fluctuates.
Fixed-rate deals usually last between 12 and 24 months. During this time, your rate per kWh remains the same. Of course, this doesn’t mean your bill remains the same. You still pay for the amount of energy you use. You are only fixing the price per kWh. The more energy you use, the more you’ll pay – same as ever.
The other type of energy tariff is a variable rate. In a variable rate plan, what you pay per kWh isn’t fixed – your rate is at the discretion of your energy supplier and could change at any time, depending on the market. As the wholesale energy rates rise, so could your rate. On the other hand, if the prices fall, you may end up paying less (but falling wholesale prices don’t always result in lower bills).
Find out more about all the different types of tariff on the market in our explanatory guide.
Why might wholesale energy prices go up or down?
Wholesale gas and electricity prices can fluctuate daily, much like the stock market. Prices depend on a range of factors, including world events and supply-and-demand. Variable rates don’t change quite so frequently – suppliers will warn their customers if they can expect a rise or a drop in prices. At OVO we give our members 30 days’ warning.
Find out more about how important wholesale energy prices are for your bills in our quick guide to wholesale prices.
Pros and cons of a fixed-rate tariff
The advantages of a fixed-rate tariff
- Cheaper energy – healthy competition between energy suppliers has pushed the prices of fixed-rate tariffs down. This means they’re usually cheaper than the variable tariff rates, other than in exceptional circumstances.
- Security – a fixed rate keeps you protected against energy price rises.
- Budgeting – the regularity of a fixed rate gives you peace of mind. It’s also easier to work out your energy costs.
The disadvantages of a fixed-rate tariff
- Expensive energy – if wholesale energy prices fall, you could end up paying more than with a variable tariff.
- Locked in – fixed-rate plans are on a fixed contract, meaning you can’t change your mind without incurring a cost.
- Cancellation fees – if you do want to cancel your contract, you might be charged an exit fee on both fuels.
Why you need to know when your fixed-price tariff ends
Your fixed-rate tariff contract is set for a fixed term – probably 12 to 24 months. It’s important to make a note of the date it finishes. Your supplier will remind you in advance, but it’s good to be prepared. On this date your rate will be rolled on to your supplier’s default tariff, which will probably be a standard variable rate.
Usually, it’s more expensive to roll onto a variable plan than it would be to choose a new fixed-rate plan. However, in some exceptional circumstances when wholesale prices are very high, it’s likely cheaper to go onto your supplier’s variable tariff.
On a variable plan, your rates are protected by the Ofgem energy price cap, which sets a limit on how much energy suppliers can charge.
What to do when your fixed-price plan ends
Before your fixed-price energy tariff contract comes to an end, find out which tariff your supplier will be moving you to. They are obliged to send out end-of-contract letters, and they might offer you another fixed-rate tariff. But before you accept, consider your options.
- Compare all available energy plans online. You may find the best fixed energy tariff is with another supplier, and you can use your Tariff Information Label to compare your tariff.
- If you find a cheaper deal with another gas and electricity supplier, now’s the time to switch.
- If wholesale energy prices are very high, it might be cheaper for you to stay on your supplier’s variable tariff.
Should I fix my energy tariff now?
This is a matter of personal choice. Fixed-price energy tariffs are usually very popular, because they offer reassurance in a market that can change quickly. See below for our fixed vs variable rate comparison. Maybe it will help you make up your mind.
Fixed-rate tariffs vs Variable rate tariffs
|FIXED-RATE TARIFF||VARIABLE RATE TARIFF|
|Pay the same rate per kWh for 12 months or more||Your rate per kWh could go up or down, depending on wholesale energy prices|
|You’re tied into a contract for 12 months or longer||Your contract is open-ended, and you’re not tied in|
|Exit fees of £30 per fuel (approx) will be charged if you leave before the end of your contract||No exit fees, you can switch whenever you like|
6 tips to keep your home energy costs down
We all want lower energy bills. Whether you choose a fixed or variable rate, there are plenty of ways to make your home more energy-efficient:
- Turn your thermostat down by just one degree and you could save yourself £60 a year.
- Low-energy lightbulbs use 90% less energy than regular ones, and they last 10 times longer. Win-win!
- Idling appliances like TVs and laptops are costing you around £35 a year. Simply switch them off at the wall.
- Did you know that the government is offering up to £5,000 in vouchers to make energy-saving improvements? Make insulating your loft or double-glazing your windows a reality with their Green Homes Grant scheme. You could save £600 a year in bills, as well as helping to save the planet. Not bad, eh?!
- Recent developments in low carbon heating technology could help you re-think your old boiler and make big savings.
- Get a smart meter installed. The meters come with an In-Home Display as standard, and they’re the most effective way to track your energy use and cut those bills.
Have these tips got you thinking? Try out 120 more cost-cutting ideas here
Frequently asked questions
Does a fixed-rate tariff mean my monthly bills will remain the same throughout my contract?
Unfortunately not. A fixed-rate only refers to the amount you pay per kWh. You still need to pay for how much energy you use. When you use more energy, you pay more. When you use less energy, you pay less. Same as always.
This also applies for monthly Direct Debits (DD). Your supplier estimates your DD payment by calculating how much energy they think you’ll use over the year. If you use more, they’ll request your DD payment goes up. If you’re using less, your DD payment could go down.
Are fixed-rate tariffs cheaper than variable?
Generally speaking, if you shop around, you’ll find that the best fixed-rate tariff will be better value than a variable rate one.
However, when wholesale energy prices are exceptionally high, the opposite might be true. In this instance, it’s probably best to stick with a variable price plan, where prices are limited by the Ofgem energy price cap.
Are there any hidden charges or cancellation fees when switching?
If you’re on a variable rate tariff, you can switch at any time, without incurring any cost. If you’re on a fixed-rate tariff, most suppliers charge exit fees if you want to get out of the contract before the term is complete.
These exit fees must be paid for each fuel. So if your supplier charges £30 as an exit fee, and you’re switching both gas and electricity, you’ll pay £60. And remember, these fees can’t be charged within 49 days of your contract’s end date.
What’s the cheapest energy tariff on the market?
The cheapest tariffs vary all the time, depending on the supplier. And they depend on where you live too. Do your research and don't forget to check directly with suppliers for their best deals.
I’m on a fixed-rate tariff and I’m moving home. Will my energy supplier let me keep my fixed-rate?
Most suppliers will let you transfer your fixed-rate contract to your new home. If you’re moving to a different area, the rates may be slightly different, but you should get a comparable saving.
If you’re planning to fix your energy rates, but know you’ll be moving soon, check with your energy supplier to make sure you can take the same deal with you.
If I switch suppliers, will my energy be interrupted?
Switching is easy. Once you’ve chosen your new energy supplier, they’ll do everything for you, with no interruption to your service. The switch usually takes 21 days, so make sure you switch before the end of your contract, for the best possible rates. You don’t even have to inform your old supplier that you’re leaving. Phew!