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Types of Tariffs: Fixed Energy Tariffs

Other Types of Energy Tariff:

What are Fixed Energy Tariffs?

Fixed energy tariffs guarantee customers a fixed unit-price and daily standing charge over a certain period of time, usually either 12 or 24 months.

Fixed energy tariffs do away with the hassle of worrying about variable prices. More often than not, fixed energy tariffs are cheaper than standard/variable tariffs. But fixed energy tariffs tie you to a supplier for a given period and early exit fees are often required. There are many fixed energy tariffs on the electricity and gas market, some better than others!

Benefits of Fixed Energy Tariffs

The good news is, fixed energy tariffs can be cheaper and less of a hassle than other energy tariffs.

Predictable energy bills

Energy prices are made up of a unit rate (customers get charged a certain amount for how much electricity and gas customers use - in p/kWh) and a daily standing charge (customers have to pay a certain amount per day regardless of usage - in p/kWh).

Fixed energy tariffs guarantee that neither of these billing components will change for the length of your contract. For example, under a two-year fixed energy tariff with a 13p per kWh unit rate and a 23p per day daily standing charge, these prices will remain the same for 24 months. This implies that customers do not need to keep an eye on possible pricing variations their energy suppliers might decide.

Fixed tariffs can be cheaper than variable tariffs

Originally, energy suppliers used fixed energy tariffs to guarantee customer peace of mind in exchange for slightly higher unit prices than with variable tariffs. This is no longer the case: often, a supplier with both variable tariffs and fixed energy tariffs will charge less for the latter than the former.

This is more often the case for the year-long fixed energy tariff most electricity and gas suppliers offer than for any longer fixed energy tariff (e.g., with fixed prices for over two years). Indeed, the risk of market prices increasing over a longer period of time is higher than over a year; the longer fixed energy tariffs are, the more likely electricity and gas suppliers are to offset the risk by charging higher rates.

Disadvantages of Fixed Tariffs

On the flipsude, fixed energy tariffs bind customers to their energy supplier and often involve early exit fees.

You're tied into a contract

Unlike variable energy tariffs, where customers are free to leave their supplier and switch whenever they choose, fixed energy tariffs often bind customers into a contract with their energy supplier for as long as the fixed energy tariffs last.

Therefore, although customers are guaranteed a unit rate and daily standing charge that will not change for a fixed period of time, they stand to lose out if the market allows for lower prices and energy suppliers lower their variable tariffs.

Leaving early often means paying exit fees

Fixed energy tariff contracts mostly require customers to pay an early exit fee if they decide to switch suppliers before the end of the duration of the fixed energy tariff. These fees vary between £5 and £50 per fuel, which means dual-fuel customers stand to pay up to £100 if they leave their fixed energy tariff to early. Insofar as energy suppliers guarantee fixed prices for a certain period and - in theory - stand to lose if market prices go up, they try to keep customers loyal through these early exit fees.

However, the national electricity and gas regulator Ofgem has established that should customers leave fixed energy tariffs and switch electricity and/or gas suppliers 42 to 49 days before the end of their fixed tariff, their supplier may not charge them early exit fees.

What fixed energy tariffs are available and how much do they cost?

According to a 2013 Department of Energy and Climate Change report, fixed energy tariffs are some of the cheaper tariffs available but depending on the suppliers customers select fixed energy tariffs have a larger price range than any other electricity or gas tariff because of the large difference in price between the cheapest and the most expensive offer.

A quick online comparison for average UK annual energy consumption (3,200 kWh of electricity and 13,500 kWh of gas) applied to a London home June 2014 confirms this: estimated annual costs for fixed energy tariffs range from £977 with Extra Energy for a fixed energy tariff ending on 30 September 2015 to £1,240 with British Gas for a fixed energy tariff ending on 31 January 2017.

However, old fixed energy tariffs disappear frequently to be replaced by new ones so it is difficult to make an accurate comparison of all energy suppliers. Customers should compare suppliers when they are moving homes or ready to switch to have a clear picture of what fixed energy tariffs are available and what they each involve.

What to do when fixed energy tariffs come to an end?

Depending on which supplier a customer is with, they might stand to gain or lose when their fixed energy tariff comes to an end.

The first thing to do is to find out from your supplier which tariff you will be switched to when your fixed energy tariff ends with them and see how it compares to your current tariff.

Either way, it is a good idea to compare all energy suppliers to find out what is available when your fixed energy tariff ends and whether you could save money by switching to a new supplier or staying with your current one.

By knowing what tariff you will automatically be moved to and what other energy plans the electricity and gas market offers, you can decide whether to stay with your current supplier or switch to a more advantageous one.