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Price cap increases- To fix or not to fix?


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Customers on variable tariffs (SVT) are being notified these days of tariff increases from 1 January. At the same time, many are being given the opportunity to switch to a fixed-rate tariff. I am trying to decide whether it would be a good idea to fix, but I’m not sure I have all the information I need. Gas hasn’t been invented yet in my corner of the world, so I’m only interested in electricity tariffs.

Cornwall Insight are a well respected crystal-ball gazer where energy prices are concerned. Their predictions for 2024 show small ups and downs in unit prices, but one startling forecast is for a hike in the standing charge of the order of 15% on 1 April. For a light user like me, this is hugely significant. On SVT, the standing charge would amount to 37% of my bill in January, but by October this would have risen to more than 41%. The fixed rates I’m being offered would keep the standing charge at more or less the current level, so that makes fixing look like a good idea. 

But … we know that Ofgem are considering changes to the way standing charges are calculated and applied. If by some miracle any change were to be implemented before 1 October next, would I miss out on any benefit this might bring? I guess the answer to that is Yes, but that it’s not very likely any change will happen by then. Agree?

And does anyone know the reason for the increase in standing charges predicted for 1 April next? Are we going to be paying for the cost of bailing out Bulb customers?

 

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Best answer by BPLightlog 15 December 2023, 10:33

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I’ve been asked about the question ‘to fix or not to fix’ often in the last few months and I always offer the same answer .. how comfortable are you with the possibility that prices might increase over the next year?

There are no two ways about it .. it is a gamble. I liken it to taking out insurance (the optional sort) where it’s a calculation as to the possibility of an expense for a loss/damage compared to - for the most part - having financial cover for those things.

Back in 2021 we fixed our energy rate for 2 years and almost everybody told me that it was at too high a level. Little did I (or anybody else) know about the pending war in Ukraine and the problems with supply from the Russian pipeline.

This time, despite the outlook, we have not fixed .. although, in effect, our tariff is a constant variable if that makes any sense. All of that is why I’ve invested in solar PV, battery storage, a Ripple community solar park and a small wind generator, so that we have a degree of self/low generation support whatever happens

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How’s the wind generator doing? Are you getting much from it? 

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How’s the wind generator doing? Are you getting much from it? 

Haha - no, not much .. it’s quite small scale as I don’t have the space

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I’m 95% sure that I’m not going to fix again just yet, small 5% doubt because the OVO fixed loyalty does look borderline interesting.
(I need to do a bit more number crunching on that, and get out my crystal ball).
Edit- I did fix after taking another look at the numbers, time will tell if I made the right decision or not.

The unit rates are expected to drop in April so I thought I’d look again then, but I hadn’t heard about that possible situation with the SC which may change my thinking.

I was fixed for a year with SSE on a triple deal, electricity, gas, and broadband.
But that ended just as the prices started going crazy and the new fixed deals offered at that time were few and seemed too high, so I went on variable tariff for energy. (and put the broadband on BT’s social tariff saving £10 a month over what I had been paying SSE, and £20 over what they wanted for it ongoing).

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Maths was never my strong point so I hope I did the right thing when I fixed for 1 year a couple of days ago for my own peace of mind. A hike, yes  -  but not too bad. My variable rates

were: leccy 25.89/55.50, gas 6.75/27.72.

now: leccy 26.61/55.74, gas 7.05/28.04

I was lucky in September 2021 when I started a 2 year contract at what now seems incredibly low rates (gas just 3.82 and leccy under 20!) so the variable rate I signed up for  cost more than double my earlier monthly DD! Quite a shock to say the least! 

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Well I’ve done some quick calculations, and like I say it is borderline for me.

Using the Cornwall Insight predictions then even with the higher SC I’d be paying slightly less for electricity over the next 12 months on SVT that with OVO Fixed Loyalty.
(I’ve left gas out of things for now).

But it is very marginal and calculates at only £11 difference over the 12 months, If I use slightly more or slightly less electricity than this year then it could swing either way.
(Or if the Cornwall predictions are out of course).

Crystal ball time again.

So essentially for me it becomes a question of how much do I value having 12 months certainty of tariff?

I’ll do my calculations again, and for gas as well, but I’m now changing my mind and it’s about 50/50 on whether to take the Fixed Loyalty rates I’ve been offered.

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Of course  post code plays a part too. Maybe I should have mentioned I'm in Torbay, South Devon. 

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I’m in Cumbria, but whilst there are regional differences in tariffs those differences aren’t that big.

PS ‘Cornwall Insight’ is a company, they are based in Norwich and AFAIK have nothing to do with the county of Cornwall (or Cumbria).

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The expected increase in electricity standing charges is primarily due to previous changes to shift some  network enhancement costs from unit rates to standing charges. This meant unit rates were due to fall…

The orange and green bits increased and will continue to increase.

Unfortunately unit rates went up due to global events so benefits were invisible to anyone…

The cost of failing suppliers is nearlly all covered now so this cost on the standing charge is nearly gone now. The SolR above. Bulb may still not cost anything.

There is a circa £16 one off addition due to come in to cover consumer bad debt. But this is being loaded onto unit rates not standing charges.

I expect the standing charge review will make some changes but when and how much this will help low users is difficult to know.... For piece of mind a fixed rate is always worth considering for many customers...

If you have strong views on the standing charges...

https://www.ofgem.gov.uk/publications/standing-charges-call-input

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… whilst there are regional differences in tariffs those differences aren’t that big.

 

‘Big’ is of course relative. The standing electric charge for a Liverpudlian is 62% higher than for a Londoner (£227 a year compared to £140). Unit rates don’t vary so much, but even so, the average 4-bed Londoner would pay £80 more a year than a similar Yorkshireman (£1219 compared to £1139).
  


  

… ‘Cornwall Insight’ is a company, they are based in Norwich and AFAIK have nothing to do with the county of Cornwall ...

 

History of Cornwall Insight

  • 2005
    Cornwall Insight is established and named after its founder Nigel Cornwall. Launched with three employees and based in a holiday cottage in the Norfolk countryside ...

 

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… whilst there are regional differences in tariffs those differences aren’t that big.

 

‘Big’ is of course relative. The standing electric charge for a Liverpudlian is 62% higher than for a Londoner (£227 a year compared to £140). Unit rates don’t vary so much, but even so, the average 4-bed Londoner would pay £80 more a year than a similar Yorkshireman (£1219 compared to £1139).
  

  

… ‘Cornwall Insight’ is a company, they are based in Norwich and AFAIK have nothing to do with the county of Cornwall ...

 

History of Cornwall Insight

  • 2005
    Cornwall Insight is established and named after its founder Nigel Cornwall. Launched with three employees and based in a holiday cottage in the Norfolk countryside ...

 

Am curious on others thoughts.

1. Would you prefer if standing charges on the price cap are smoothed out so everyone pays the same irrespective of where you live?

2. Would you prefer if unit rates were smoothed out so everyone on the price cap pays the same irrespective of where you live?

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1. Would you prefer if standing charges on the price cap are smoothed out so everyone pays the same irrespective of where you live?

2. Would you prefer if unit rates were smoothed out so everyone on the price cap pays the same irrespective of where you live?
 

The result of this survey might be predictable, although the fact that standing charges follow a different regional variation than unit rates complicates it considerably. I’m sure my Liverpudlian exemplar would like to see standing charges standardized across the country, but I doubt the Londoner would. It’s not an unreasonable concept, though; it costs just the same to send a Christmas card from Penzance to Falmouth and from Penzance to Lerwick (I think), so why should it cost more to send electrons further? 

It’s not quite the same with unit rates, though, and the absence of market forces doesn’t make it easy to find an equitable system. Is there a big difference in the price of a pint of milk in Inverness and Cardiff? Or a litre of petrol in Ullapool and Dover? I don’t know, but I shouldn’t be surprised either way. 

 

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Wholesale gas prices have been falling. This impacts both gas and electricity prices.

So it will be interesting to watch.

It has been falling because of lower demand in the northern hemisphere, large stockpiles and forward protections of relatively warm temperatures. Also a switch to using coal rather than gas in some other parts of the world. 

Hence why some of the fixed rates are priced competitively as suppliers can lock in reasonable costs. 

It is hard to predict what will happen to wholesale prices and any government/ofgem policy changes.

 

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Yes, it’s difficult to make predictions, especially about the future.

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If there was less of penality for leaving fixed i’d proably go for the loyalty one, I just can’t decide either, it will be slightly cheper for hte first 3 months of the year htats for sure, but for the rest not sure, I can’t see it goign down a lot but you never know, I feel increase is more likely

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I don’t really consider the leaving penalty, if you are fixing then you fix for the full term.

One other thing that is now swinging me towards fixing at the offered loyalty rates is actually nothing to do with the rates themselves.

By fixing I wouldn’t have to put up with them wanting to increase my DDs to inflated levels every 3 months and then having to get on the phone and argue them back to a reasonable level.
(When you fix the only variable becomes your estimated usage for the period of the fix).

I do have a debit balance to pay off from the transfer from SSE, my balance will be about -£150 after Decembers DD is paid, but as I am currently paying around £50 a month more than my usage it’s on track to clear that completely by the end of March.
If I fix now then what remains of that (ie, the -£150) will get spread over the next 12 months instead, but I don’t see that as an issue.

Timing can be important when fixing, especially if you have a debit balance like me then you want to fix when your existing balance is at it’s lowest. which will be the day or day after your DD has been paid in.

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By fixing I wouldn’t have to put up with them wanting to increase my DDs to inflated levels every 3 months

 

Is this what happens currently? OK, there was a policy change that took effect on 1 October last, the one that aims (quite sensibly, to my mind) for a zero balance at 31 March. Those in debt at the beginning of winter would naturally see a higher DD recommendation, because there were now fewer months in which to whittle the debt down. So I suppose if you were to fix now, you’d have 12 months to do it in. If that is the case, then I suppose it makes sense for you, if not for OVO. 

My own reasoning depends on the Cornwall forecast increase in standing charges, which I still don’t know what causes. If I can head that off by fixing, I would still be in the black even though their predictions of increased unit prices proved to be a bit pessimistic. I’m not sure where the extra £16 a year fits into the picture (did Cornwall expect it to be loaded on to the standing charge, even though Jeff suggests that this wouldn’t be the case?). Either way, fixing now would avoid it for a few months at any rate. 

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By fixing I wouldn’t have to put up with them wanting to increase my DDs to inflated levels every 3 months

 

Is this what happens currently? OK, there was a policy change that took effect on 1 October last, the one that aims (quite sensibly, to my mind) for a zero balance at 31 March. Those in debt at the beginning of winter would naturally see a higher DD recommendation, because there were now fewer months in which to whittle the debt down. So I suppose if you were to fix now, you’d have 12 months to do it in. If that is the case, then I suppose it makes sense for you, if not for OVO. 

My own reasoning depends on the Cornwall forecast increase in standing charges, which I still don’t know what causes. If I can head that off by fixing, I would still be in the black even though their predictions of increased unit prices proved to be a bit pessimistic. I’m not sure where the extra £16 a year fits into the picture (did Cornwall expect it to be loaded on to the standing charge, even though Jeff suggests that this wouldn’t be the case?). Either way, fixing now would avoid it for a few months at any rate. 

"Looking ahead to the second 2024 cap period (April-June), Cornwall Insight anticipates an 8p per day increase in electricity standing charges, influenced by the ongoing reform of network charges."

https://www.energylivenews.com/2023/11/16/energy-price-cap-to-rise-5-in-january/#:~:text=Energy%20consultancy%20Cornwall%20Insight%20has,a%20typical%20dual%20fuel%20household.

I haven’t seen anything that Cornwall Insight incorrectly assumed the consumer debt charge was going on the standing charge, all the ofgem documents mention the debt costs going on the unit rates for the very reason that the standing charge is already high... but of course i can't be certain. This is an ofgem document for example.

As Cornwall Insight say there is nothing clever in their estimates, they use data and calculations that are in the public domain. These get more accurate as they approach each ofgem calculation point.

The shifting of network charges from unit rates to standing charges will continue unless ofgem and the government decide otherwise. This is both the Transmission costs ie National Grid ESO or Distribution costs ie your local DNO.

Not only are the costs shifting from unit rates to standing charges, there is an awful lot of upgrades needed for net zero to connect and distribute all the renewable power and increase the capacity in the infrastructure for all those heat pumps, EVs etc.

Also in the past the costs for connecting a new generator was bourne by the generator so appeared in their costs and fed through in their unit rate. This shifted so some costs are bourne by the network operators and will appear on the standing charge.

You can see the start of all these changes in the graph I posted. TNUoS for Transmission costs and DUoS for Distribution costs.

One alternative of course is to reverse this decision and put these costs back onto unit rates.... I can't see any government shifting the costs to general taxation 

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1. Would you prefer if standing charges on the price cap are smoothed out so everyone pays the same irrespective of where you live?

2. Would you prefer if unit rates were smoothed out so everyone on the price cap pays the same irrespective of where you live?
 

The result of this survey might be predictable, although the fact that standing charges follow a different regional variation than unit rates complicates it considerably. I’m sure my Liverpudlian exemplar would like to see standing charges standardized across the country, but I doubt the Londoner would. It’s not an unreasonable concept, though; it costs just the same to send a Christmas card from Penzance to Falmouth and from Penzance to Lerwick (I think), so why should it cost more to send electrons further? 

It’s not quite the same with unit rates, though, and the absence of market forces doesn’t make it easy to find an equitable system. Is there a big difference in the price of a pint of milk in Inverness and Cardiff? Or a litre of petrol in Ullapool and Dover? I don’t know, but I shouldn’t be surprised either way. 

 

That is where cost and price comes in for want of better words.

We have a universal service for post so customers pay the same price, but it costs Royal Mail more to send a Christmas card longer distances or to deliver in sparse rural areas.

We don't have the same setup for electricity standing charges or unit rates.

In fact the regional price for electricity unit rates may well change from regional to zonal and nodal as we move towards more time of use tariff as more customers have  EVs and heat pumps. So one part of a village may have different prices to another part in any 30min slot. The differences in local substations could be dramatic in a few cases.

 

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By fixing I wouldn’t have to put up with them wanting to increase my DDs to inflated levels every 3 months

 

Is this what happens currently? OK, there was a policy change that took effect on 1 October last, the one that aims (quite sensibly, to my mind) for a zero balance at 31 March. Those in debt at the beginning of winter would naturally see a higher DD recommendation, because there were now fewer months in which to whittle the debt down. So I suppose if you were to fix now, you’d have 12 months to do it in. If that is the case, then I suppose it makes sense for you, if not for OVO. 

 

Yes, it’s been happening since I was moved from SSE to OVO.

As an example the last time they wanted £164 a month, (dual fuel), I argued it down to £150 and as I say that is currently on target for zero balance at the end of March.
So it isn’t difficult to see which one of us had the more correct calculation.
(OK I accept that the new January 2024 rates would alter that, but at the time of the calculations both of us had to calculate using the rates announced at that time).

I believe it happens because they tend to calculate the new DD’s just days before my DD is paid, and so the previous months usage is added to the calculation as ‘debt’.
(It’s also my belief that that is the cause of the phantom 13-months DD calculations we sometimes hear about, the 13th is the current, not yet paid, months balance added as a debt to the coming 12 months).

I have now decided to fix for the next 12 months at the Fixed Loyalty rates.
So a U-turn from my first post in this thread.
I’m now weighing up whether to do that on my next DD date or next monthly bill end date, there’s currently a couple of days diference. I’ll probably do it on DD day when the outstanding debt will be at a minimum.

As you note that does mean that the remainder of my outstanding balance gets spread for another 12 months.
I calculate that my new DD on the fix should be around £130 a month. (Dual Fuel), It will be interesting to see what OVO calculate.

PS. I have read the Ofgem review discussion paper, interesting if you have the stamina to read it.

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I have now decided to fix for the next 12 months at the Fixed Loyalty rates.

 

 

Me too. I went ahead and did it, but found to my alarm that I had apparently arranged to move out of my house and back in again the same day. OK, if that’s how it works - but then I found that this involved closing my existing account and opening a new one with no history and (presumably) none of the benefits I’d accrued. This isn’t what I signed up for, so I tried to get the change reversed. Not possible online, telephone only, they said. Two anxious days of waiting for phone lines to open again ensued, but I think we managed it today.

I explained that the tariff I wanted to change to wasn’t available on my renewal page. One of the agents I chatted with told me to look at the Home page, which I eventually managed to find at www.ovoenergy.com and not behind the big Home button. There it was, but that’s where the move out/move in/close account/open account circus started. So, advice to those about to fix: avoid the Home page and work only from the Renewals page.

 

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@Firedog @Nukecad did you consider the 2 year fix?

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… did you consider the 2 year fix?

 

Yes, but I chickened out. Anything can happen over the next year, and probably will, so the £95 exit fee looks fairly ominous should prices in general fall. I also expect some sort of easing of the standing charge burden for light users like me to be at least in the offing a year hence.

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@Jeffus I had looked at it but the rates were higher than the Fixed Loyalty plan rates that I had beeen offered.

However just looking again online the Fixed Loyalty rates have changed/increased from what I was originally offered.

I wasn’t aware that an offered ‘fixed’ plan could change rates like that, but thinking about it I suppose it does make sense and that it’s only fixed once you actually sign up.
Time to recalculate.

Even so I think that in the current climate with tarifs 2 years is a bit too long to fix.

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@JeffusI had looked at it but the rates were higher than the Fixed Loyalty plan rates that I had beeen offered.

However just looking again online the Fixed Loyalty rates have changed/increased from what I was originally offered.

I wasn’t aware that an offered ‘fixed’ plan could change rates like that, but thinking about it I suppose it does make sense and that it’s only fixed once you actually sign up.
Time to recalculate.

Even so I think that in the current climate with tarifs 2 years is a bit too long to fix.

Gas wholesale prices continue to fall so if this is sustained the Cornwall Insight figures for gas and electric will drop at their next press release. 

These prices feed into the ofgem price cap which looks at historic prices.

 

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