Is It Worth Fixing Your Energy Bills with the 2024 Price Cap Rise?
As of October 1, households in the UK are facing an increase in their energy bills due to a rise in the “price cap.” The typical household will now pay £1,717 a year for their energy bills, which is an increase of £149 over the year or around £12 a month. This rise in the price cap means that households can expect to pay more for their energy this winter than they did since July. However, it is still around 6% less than its level in October last year when it was £1,834.
The increase in the price cap has been attributed to a rise in wholesale costs since mid-February. Experts predict that the cap could rise even further in January due to recent tensions in the Russia-Ukraine war. The previous cap set by Ofgem saw energy bills fall to the lowest they had been for two years, but with the removal of government support, households are still paying far more for their energy than they were before the Russia-Ukraine war.
Some 10 million pensioners will also no longer receive the annual winter fuel allowance after Chancellor Rachel Reeves announced that the £200 payment (£300 for over-80s) would only be paid to those already in receipt of pension credit. This means that despite bills falling year-on-year for most households, pensioners will be the only group to see bills go up since last winter.
Fixed Energy Tariffs: What You Need to Know
Fixed energy tariffs are deals offered by energy providers that last for a certain amount of time, usually around 12 months. During this time, you’ll pay a set amount for your gas and electricity, while your bills will vary depending on your usage. If you don’t sign up for a fixed tariff, the rate is liable to fluctuate in accordance with the energy price cap.
Is Fixing Energy Worth It?
Before the energy crisis, households were accustomed to shopping around for competitive fixed-price deals. However, the energy crisis disrupted the market, leaving variable rates governed by the price cap as the only viable option. Fixed rates became so expensive that providers stopped offering them altogether.
As wholesale prices have cooled, a number of fixed-rate deals have come on the market after years of being unavailable. Fixing can be worth it when wholesale energy prices are set to increase, as those on fixed tariffs will escape the resulting price rises. However, by committing to a fixed deal, you also run the risk of paying over the odds if energy prices fall during your contract term.
Gareth Kloet, of comparison site GoCompare, emphasized that the change in the price cap presents a good opportunity for households to assess whether they are paying a competitive rate for their power use. He advised consumers to consider whether they will have to pay any early exit fees if they leave before their current deal is up and to explore all available options on a comparison site.
Energy providers have increased exit fees in recent years, meaning that households looking to switch from an unfavorable rate will likely incur additional costs. Several providers have introduced fixed rates that are significantly cheaper than the current cap, but consumers should be cautious as such fixes may end up costing more in the long run.
Richard Neudegg, director of regulation at comparison site uSwitch, encouraged billpayers to take action now to lock in certainty on how much they pay. He highlighted that there are several 12-month fixed deals available at rates cheaper than today’s firm prediction, urging consumers to run a comparison to explore available energy tariffs.
The Importance of Fixed-Rate Deals
Defenders of fixed-rate deals argue that they offer long-term security, as unlike variable tariffs, they cannot change throughout the duration of the deal. This stability could shield households from shocks in the wholesale market. Analysts across the sector predict that the cap will rise again when it is reviewed in October, meaning that consumers who lock in at rates comparable to the current cap may end up saving money in the long run.
Dr. Craig Lowrey, of Cornwall Insight, acknowledged that the rise in the price cap will pose challenges for many households, urging those struggling to pay their bills to ensure they have access to all entitled benefits, particularly pension credit, and to contact their energy company for further help and support. He also encouraged people to shop around and consider fixing their tariffs if a suitable option is available.
Predictions for Energy Price Caps
The price cap from October 2024 to December 2024 is up 10% to £1,717 a year, an additional £149. Predictions suggest that the price cap from January 1, 2025, could rise to £1,815 a year, and to £1,825 from April 1. While these are estimates, they provide a sense of what energy prices are expected to do next year. Unexpected global events can have a dramatic effect on prices, with conflicts in Ukraine, the Middle East, or Taiwan potentially driving up wholesale gas prices and resulting in higher bills.
The Difference Between Fixed and Variable Energy Rates
A fixed tariff means your rate will remain the same for the duration of the contract you’ve signed up for, whereas a standard variable tariff means the rate you pay will fluctuate according to the price of energy. Therefore, if you’re on a fixed tariff, changes to the energy price cap won’t affect you, as your rate will remain constant until your contract ends. On the other hand, for those on variable rate tariffs, bills are likely to become more expensive if a higher price cap comes into effect.
Considerations for Fixed Energy Deals
Providers regularly introduce new deals, so it’s essential to check comparison websites to find the best value deal for your household. One competitive deal worth considering is the E.on Next Pledge, a variable tariff offering a fixed discount off the energy price cap units for 12 months. The EDF Energy Ensure tariff works similarly, remaining £50 cheaper than the price cap for the term.
Other types of deals to consider include one-year fixes, longer-term fixes, price cap trackers, and time-of-use tariffs. Each option caters to different energy usage patterns and preferences, providing consumers with choices to suit their needs and budget.
Understanding the Energy Price Cap
The price cap limits what energy providers can charge customers on a standard variable tariff, with most households currently on variable deals due to the unavailability of competitive fixes during the energy crisis. The cap is revised every three months based on wholesale costs and aims to control the rates at which customers are charged for gas and electricity usage.
The price cap is not a limit on the total amount households will pay each year but rather sets the rates for gas and electricity usage, along with standing charges. Standing charges are billed to households daily regardless of energy usage, with households paying an average of £6.49 a week or £338 a year for electricity and gas usage.
Impact on Household Expenses
From October 1 to December 31, the unit rate for electricity will increase from 22.36p to 24.5p per kWh, while gas will rise from 5.48p to 6.24p per kWh. This translates to around a 10% increase in the cost of running electrical appliances and a 14% increase in heating costs for gas users.
To illustrate the impact on individual usage, an electric kettle boiling water would cost about 4p under the current price cap. If you boil a fresh kettle for one cup of tea a day, the cost would be £12.05 a year under the current cap and £13.14 a year under the October cap. Similarly, running electrical appliances like washing machines, tumble dryers, and dishwashers can add significant costs to household expenses.
Tips to Save Money on Energy Bills
With the price cap forecasted to rise again in January, it’s crucial to enhance your home’s energy efficiency to mitigate increasing costs. Simple steps like getting your boiler serviced annually and ensuring proper insulation can help reduce energy consumption and save money in the long run. Insulating your home’s loft and cavity walls can prevent heat loss and lower energy bills significantly.
Making informed decisions about fixed-tariff energy deals is essential in the current market climate. While fixed rates offer stability and protection from price fluctuations, consumers should carefully consider their options and assess the potential savings over the contract term. By staying informed about energy price trends and exploring competitive deals, households can make strategic choices to manage their energy expenses effectively.
In Conclusion
Navigating the complexities of energy tariffs and price caps requires a proactive approach to ensure cost-effective energy usage. With the market dynamics constantly evolving, consumers must stay informed about available deals, assess their energy needs, and consider fixed-rate options to secure long-term savings. By taking steps to improve energy efficiency, such as servicing boilers and enhancing insulation, households can optimize their energy usage and minimize expenses in the face of rising price caps and fluctuating wholesale costs.
