Tariffs and fixed rates

[Simpo Two]

I don't follow tariffs; I have gas and electricity with Octopus on their standard variable tariff and leave it at that. A few pounds either way doesn't bother me.

However, in January I hear that prices are going up by 16%, and it seems I can avoid that by moving to a fixed rate tariff.

Is it really that simple? Can everybody avoid the 16% increase just by changing to fixed rate? If they do, surely the industry will lose billions and hammer us for 30% in August... something doesn't join up...

[troika]

No, because fixed tariffs have factored in the likely change (hike). No different to fixed rate mortgages being based on swap rather than base rate. Look what Octopus will offer you to fix now, but sit down before you do.

[Mike Legerwood]

Good question. I've wondered the same.

I don't see the sense in a business saying that if you fix the price now we will charge you less and continue to charge less when we put the price up for everyone else.

I get it with eg mortgage interest rates as they can go either way, so fixing for a couple or more years is a gamble on both sides.

But when it is known that energy prices will definitely increase and by how much it seems as if the energy companies must be losing out.

[Simpo Two]

troika said:

No, because fixed tariffs have factored in the likely change (hike). No different to fixed rate mortgages being based on swap rather than base rate. Look what Octopus will offer you to fix now, but sit down before you do.

Current - they call it Flexible Octopus but also Economy 7 (though night and day are the same rate):




Clicking 'Change my tariff' gives:



£140 plus 16% is £162.40 so that makes the 18 months fixed look quite good.

I can't find unit prices for the fixed rates.

So, when exactly do the prices go up, and can I change to the fixed tariff the week before? (no point paying extra now).

[troika]

Go into the quote and look at the unit rates. I’m on the same standard octopus tariffs.

Gas
Current 8.12p
18 month 9.37p
12 month 9.60p

Electric
Current 26.58p
18 month 29.18p
12 month 30.85p

Of course, if you switch, you pay the higher rates now. These prices may change between now and the end of the year. Interestingly, it says the standing charges are also fixed. Not sure how this works if the govt abolish them during the term.

[Simpo Two]

For 12 months fixed I get:

Electricity:
Unit rate - day (p/kWh)
33.28 37.07
Unit rate - night (p/kWh)
13.96 15.55
Daily standing charge (p/day)
50.75 50.75

Gas
Unit rate (p/kWh)
7.91 9.21
Daily standing charge (p/day)
28.38 28.38


I'm sure they set the day and night rates the same but maybe they split up if you change tariff. That said almost all my usage is daytime so that's +11.4% for electricity and +16.43% for gas.

So it seems the price rise is about the same whether you go for Fixed or stay on Variable, especially if by switching now I pay the higher prices for longer. Pence per wotsit is unnecessary detail really, what I actually have to pay is the bottom line.

Frankly I'd just rather post a cheque in arrears to the Electricity Board once a quarter. As it used to be!


ETA But hold on, when I posted the electricity day rate before it was 26.61, now it seems to be 33.28...

Edited by Simpo Two on Thursday 29th October 16:20

[Condi]

Simply put fixed prices are forward looking and price cap prices are backward looking. The industry is pushing 2 year contracts because the 2nd year is cheaper and so it makes the overall contract price look more competitive. Also why they're all coming with exit fees because they'll lose money in the first year and make it all in the 2nd, so they don't want customers leaving after 12 months.

[Takemeaway]

I’m on 4.96p gas rate which expires in December.

Been offered broadly a 9p fix on gas for either 6 months or 18 months - the 18 month fix has a £75 exit fee.

All with octopus.

I’m leaning towards fixing for 18 months due to all the ongoing uncertainty even though it will add minimum £500 annually to my bill

[Simpo Two]

Condi said:

Simply put fixed prices are forward looking and price cap prices are backward looking. The industry is pushing 2 year contracts because the 2nd year is cheaper and so it makes the overall contract price look more competitive. Also why they're all coming with exit fees because they'll lose money in the first year and make it all in the 2nd, so they don't want customers leaving after 12 months.

Thanks. But how do they know the second year will be cheaper? And if they know that, it's more reason for us to stay on the variable rate...

It rather confirms my suspicion, as with mortgages, than 'fixed deals' are offered because they suit the company not the customer.

Takemeaway said:

I m on 4.96p gas rate which expires in December.

Been offered broadly a 9p fix on gas for either 6 months or 18 months - the 18 month fix has a £75 exit fee.

All with octopus.

I m leaning towards fixing for 18 months due to all the ongoing uncertainty even though it will add minimum £500 annually to my bill

So you're voluntarily taking an 81% price rise just so you know what your bill will be? That's so high I had to check my sums!

[butchstewie]

Simpo Two said:

So you're voluntarily taking an 81% price rise just so you know what your bill will be? That's so high I had to check my sums!

I think he means he's been offered a fix but could go on variable and just take his chances what the unit price will be.

I don't think energy companies are charities there's clearly something in it for them but I also don't think there's any sort of "gotcha" here - it's the option of a known cost or the option of unknown costs.

[Condi]

Simpo Two said:

Condi said:

Simply put fixed prices are forward looking and price cap prices are backward looking. The industry is pushing 2 year contracts because the 2nd year is cheaper and so it makes the overall contract price look more competitive. Also why they're all coming with exit fees because they'll lose money in the first year and make it all in the 2nd, so they don't want customers leaving after 12 months.

Thanks. But how do they know the second year will be cheaper? And if they know that, it's more reason for us to stay on the variable rate...

It rather confirms my suspicion, as with mortgages, than 'fixed deals' are offered because they suit the company not the customer.

They don't "know" it's going to be cheaper, but today you can buy electric for 2028 cheaper than you can buy electric for 2027. It might be when we get there the price for 2028 is higher, but that doesn't matter if they can buy it today and lock in a margin.

Look at it like this, if you wanted to buy today;

Electric 2027 30p/kwh.
Electric 2028 25p/kwh.

The supplier offers a 2 year fixed price for 28p/kwh and make 1p profit overall, although they actually lose 2p in the first year and make 3p in the 2nd year.

You could stay on a variable rate, but if 2027 is 30p and 2028 is also 30p by delivery then you'll end up paying 30p.

The opposite could be true, Iran and the US make up, prices come down, power for 2027 is only 25p and 2028 is only 20p, but you don't know that so it depends if you want the risk of prices going up (and the benefit of prices coming down), or if you want the energy company to take that risk for you.

[Takemeaway]

Simpo Two said:

So you're voluntarily taking an 81% price rise just so you know what your bill will be? That's so high I had to check my sums!

I'm caught by the balls here as my current rate is so low - a flutter in global relations could see gas prices rise like they did when it all kicked off in Ukraine.

Fixing at least secures a rate for the next 18 months, and with an exit fee of £75, this is small money in the grand scheme of things


... or am i missing something obvious? It's a big increase in my bill which is putting yet another squeeze on family finances - especially at 25k kw annual usage (which is shocking in itself!)

[Simpo Two]

Takemeaway said:

I'm caught by the balls here as my current rate is so low - a flutter in global relations could see gas prices rise like they did when it all kicked off in Ukraine.

Fixing at least secures a rate for the next 18 months, and with an exit fee of £75, this is small money in the grand scheme of things


... or am i missing something obvious? It's a big increase in my bill which is putting yet another squeeze on family finances - especially at 25k kw annual usage (which is shocking in itself!)

You're right, it's a high percentage increase because you've been enjoying a very low rate up to now. It will be the same for mortgage holders when their 2% deal ends and suddenly they're on 5%.

[Takemeaway]

Simpo Two said:

You're right, it's a high percentage increase because you've been enjoying a very low rate up to now. It will be the same for mortgage holders when their 2% deal ends and suddenly they're on 5%.

Yeah that's me too, at the end of next year

[megaphone]

I've seen estimates that price cap will rise by 25% in January, not 16%, so that may affect decisions.

I thought my current Octopus fix ran out end of January, my mistake it's Jan 1st, so I need to make a decision, if I take a new fix will octopus keep me on the current one until Jan 1st????

[worsy]

Takemeaway said:

Simpo Two said:

So you're voluntarily taking an 81% price rise just so you know what your bill will be? That's so high I had to check my sums!

I'm caught by the balls here as my current rate is so low - a flutter in global relations could see gas prices rise like they did when it all kicked off in Ukraine.

Fixing at least secures a rate for the next 18 months, and with an exit fee of £75, this is small money in the grand scheme of things


... or am i missing something obvious? It's a big increase in my bill which is putting yet another squeeze on family finances - especially at 25k kw annual usage (which is shocking in itself!)

We use about 12000kWh and I am on variable. I'll be sticking with that as a de-escalation in Iran will hopefully see prices tumble. I think with your usage I'd be inclined to fix though.

[Simpo Two]

worsy said:

We use about 12000kWh and I am on variable. I'll be sticking with that as a de-escalation in Iran will hopefully see prices tumble. I think with your usage I'd be inclined to fix though.

It's a pity the world can't fix prices... or would that be a cartel and therefore illegal...?

[Takemeaway]

megaphone said:

I've seen estimates that price cap will rise by 25% in January, not 16%, so that may affect decisions.

I thought my current Octopus fix ran out end of January, my mistake it's Jan 1st, so I need to make a decision, if I take a new fix will octopus keep me on the current one until Jan 1st????

Yes they will

[Condi]

Simpo Two said:

It's a pity the world can't fix prices... or would that be a cartel and therefore illegal...?

Not really how capitalism works!