Renewal dilemma discussion - What's the best option (fixed or variable) in the current energy market?

  • 13 November 2021
  • 21 replies
  • 240 views

Userlevel 2

Hi everyone ☺️

I have been a dual fuel customer with Ovo for over 7 years and have always ensured I get the best fixed rate deals possible. My dual fuel fixed rate deals expire on different dates (long story). My electric fixed rate deal expires 04/12/21 and my gas fixed rate deal expires in June 2022. For this reason, I am only asking about my electric as this deal is about to end.

 

Taking into account that fellow forum members can only provide non-binding guidance and thoughts, I wondered what everyone's views are about the following...... Based on the information below, if you were me, would you lock-in to a new 3 year fixed electric deal commencing on 05/12/21 (note: the rate cost I am being offered has fallen twice in the last 4 weeks!!). Here is my situation:

 

Current electric deal (05/12/19 to 04/12/21):

Unit rate: 15.22p/kWh 

Standing charge: 27.40p/day

 

New 3yr electric deal (05/12/21 to 04/12/24):

Unit rate: 25.41p/kWh

Standing charge: 25.64p/day

 

Price capped variable rate:

Unit rate: 20.31p/kWh

Standing charge: 23.76p/day

 

Whilst I can see the variable rate is the cheapest option, the question is whether or not I would be better locking myself into the 3 year fixed rate now to protect myself from further increases? Should I slide on to the variable rate and hope the costs come down and not go up? Should I wait a couple more weeks and see if the cost of the fixed rate offer will drop even further (it has come down twice in 4 weeks), or is it likely to rise meaning I will miss out? PS: 2 year fixed rate offer is ridiculously high!

 

What is everyone's thoughts and views about this? What would you be tempted to do? Obviously I know any views are non-binding so please don't worry. Just looking for your input.

 

Thanks everyone and take care ☺️👍🏻


21 replies

Userlevel 7
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Hey there @Wilson02 , welcome to the OVO Forum!

I must say you had me worried for a moment with that thread title! I honestly thought this thread was going to be another one complaining about the available tariffs, so I’m relieved that it’s actually a more genuine question. I can ask @Tim_OVO to convert this thread to a Question on Monday if you’d like? It might help to get the attention this thread deserves a bit more easily.

This I have to admit is a pretty tricky one to be honest, but sure to generate some good discussion. Let me see if I can get a few other members to stop by. Our combined voices will likely provide a lot of context for you to work with. Fancy a shot at this one @Simon1D , @Transparent , @nealmurphy , @juliamc  , @TomThumb , @Gingernut49 @Mw2870 @Jeffus or @knight ?

Personally, I would like to mention that it’s a bit of a lottery in general - especially right now - and locking in a three-year deal while the price trend is turning in your favour probably isn’t a bad idea - you can always break contract later if the potential savings outweigh the early exit fees. On the other hand, it does at least mean absolutely zero price increases for the next three years, which is a bit of a bonus when you think about it.

The variable rate might sound tempting, but the risk is that prices could shoot up again at anytime - and they probably will at the next price cap review - by which point the tasty deal you’re being offered right now could be long gone. But at the same time, it could go the other way if you want to take the risk and play the waiting game.

Oh, and feel free to tell that story if you’d like to. We quite enjoy hearing them after all. :)

Userlevel 5
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I drive a Nissan Leaf so I'm now on the Drive + Anytime tariff and only pay 5p/kWh when I charge overnight. 

I don't have gas now.

15.90p/kwh for the rest of my usage and 28.60p standing charge. 

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Admittedly, I also don’t have a gas supply at all, so I’m electric only. For my current deal with OVO, I managed to snag a cheap two year fix right before the market started going crazy - and on the one day when both the one year and two year options were exactly the same price. So I decided that it was better to lock in the deal for longer. Having originally been on Better Energy over the last year, I’m now on the 2 Year Fixed Energy deal, with 18.76p/kWh and 22.57p/day. Which is only a tiny bit higher than what I had last year (my renewal window literally opened at exactly the right moment).

Userlevel 2

@Blastoise186 

More than happy for @Tim_OVO to convert this thread to a question if it generates more interest. I am genuinely interested in the feedback as I am considering whether or not to lock-in over the next few days. The cost of the 3yr fixed rate deal has dropped twice in 4 weeks but obviously I'm nervous it might change again any day and go back up (or alternatively I might miss out on another drop - yikes!!!!!)..... Hence my dilemma. Definitely no moaning from me. I accept and understand the price increases to both the unit rate and standing charge. Ovo have always been very fair with their pricing structure. 

 

The boring part of my story (that has worked out well for me on this occasion), is that I used to be an Economy 7 customer and when they moved me on to a single rate tariff, the date for my fixed rate electricity deal then started at a different time of year compared to when I started my gas deal. It makes it tricky when doing a price comparison on comparison websites as they don't allow for different gas/electric tariff start and finish dates. However, I'm not complaining. It's never caused me a problem and right now it's good news as it means I'm still locked in to my relatively cheap fixed gas deal until June 2022. Phew!

 

Anyway, really looking forward to everyone's input over the next few days. I will read them all enthusiastically and let you know what I decide! It really is a bit of a lottery right now and interested to know what everyone's views are! What would you all do if you were me right now? 😬☺️👍🏻

Userlevel 7
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There’s room for a lot of guessing here, not least over what might happen to energy prices (as charged, on variable rate tariffs, as opposed to “wholesale” prices, which also vary but which aren’t always linked to what we pay as simply as they might be) over the period of the fixed rate deal you might look at.

And second-guessing too, around how companies might be going about setting the prices in the tariffs they offer.

With a few companies recently going bust (essentially because they couldn’t finance the cost of supplying their customers at the fixed prices that they were contracted to) I can imagine that the companies who haven’t yet gone bust might be building a little more “contingency” into their pricing model (what they need to cover their “return on investment”) than they would have done before, when they make their offers to prospective customers.

I saw one energy supplier say recently that generally, they would expect their variable rate tariff to work out slightly cheaper for customers than any of their fixed rate tariffs.

That may sound surprising, given that a lot of us (me included) are on fixed rate tariffs, but I think the reasoning is that the supplier is taking on some risk when setting a fixed price tariff, whereas (a lot of, but not all) that risk is being off-loaded onto the consumer who signs up to a deal based on a variable rate tariff. Companies don’t take on risk for free so, on average, those fixed rate tariffs work out more expensive.

This penalises consumers who might already be on the edge, just about paying their bills, because they can be attracted to paying a larger (but fixed) price for the relative peace of mind it brings. Remember, these are people who might be close to not being able to pay all their bills, and the system is working in a way that makes them pay more. Other people (and I count myself among this privileged group) get to pay less, overall, if we can afford to bear that risk. So the ones who might find it relatively easy to cover their bills get to pay less (on average) anyway. Doesn’t sound fair to me, but that’s “the way of the world”.

In the present circumstances, the fact that variable rate tariffs are capped surely makes them tempting (to those who can afford to take on the risk). Even though the level of the cap can and does change my own view, for the little that’s worth, is that a cap is better than no cap. One side effect of the cap is that all supplier’s variable rate tariffs are the same at the moment. And suppliers might not highlight their availability when trying to attract you as a potential customer, but I suspect that all suppliers are obliged to offer a variable rate tariff (one that benefits from the cap) as a condition of being licensed, including offering the variable rate tariff to customers who are switching.

If all suppliers ended up offering something at the same price by some other process (like making secret deals) that would amount to a cartel and those suppliers should get into trouble. But in this case, it’s happening against the wishes of the suppliers, and so it’s “obviously” something that benefits consumers rather than suppliers, and so not at all like a cartel.)

Unless the whole system of price caps is deemed to be broken, and the government abandons it. That is less likely to benefit consumers.

On which rambling note, I’ll stop. And wish you good luck, whatever you end up doing.

 

PS On the detail of having both fuels but different renewal dates, I’ve no idea. I might be tempted to move to variable rate electricity for now, and use the flexibility of being able to move to another tariff (a fixed rate one if you prefer) without any penalty whenever you want to (another feature that I forgot to mention - fixed rate tariffs almost always have a penalty for switching during the term), as a way of aligning the contract dates for gas and electricity. I think it’s common to be offered a discount for a dual fuel contract (because the overheads are reduced in having one contract rather than two).

(If you happen to be supplied with both, by the same company, but under two different contracts, I wouldn’t refer to that as “dual fuel” because the fuels are being treated quite independently of one another. If I’ve understood correctly.)

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How much are the early termination charges? I actually managed to get a 1 year fix during the crisis with £0 early termination charges. If they are more than zero you could try getting some cash back for a switch through a comparison site (I know they had stopped paying for a while) - the cash back might offset any termination charges if prices drop and you decide the switch. That being said when cash back is paying out you normally get offered more for dual fuel, so it may be worth looking into aligning the terms.

Userlevel 7
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@Wilson02 a few thoughts…

Firstly the unt price for the 3 year deals looks a lot better than what's been available in the last few weeks. I've seen fixed unit prices at 35p/kWh, then 30p/kWh. Your price is back to what things were around September time before things went crazy.

You haven't said what the exit fee is. I tend to go with tariffs with zero exit fees so I can swap if a better cheaper fix comes along. Exit fees do give the supplier a bit more certainty for buying the right amount of energy in advance, but personally I prefer no tie ins.

Will a cheaper fix come along? Probably. Will it be before your existing tariff ends, maybe not. 

The variable tariff will go up in April. Talk is around a 30% increase. I'd put my money on there being a scramble for fixed tariffs in the weeks before this, like there was in September, so you'd need to grab a deal before all the hedged energy disappears. If I was looking, and didn't have the benefit of no exit fees, I'd probably lock in a tariff by around February.

Though, another way to look at it is, if you can afford the offered 3 year fix, this does give you certainty in payments for that length of time without worrying about the energy market. So if you prefer peace of mind rather than bagging the absolute best bargain then maybe this is preferable?

Userlevel 2

@Mw2870 @nealmurphy exit fee is £60 per fuel. The exit fee doesn't worry me too much to be honest. It's very much trying to weigh up the pros and cons of whether I should lock-in now, wait until just before my tariff expires (although the fixed rate offer I'm getting now could go up or down again) or slip on to the variable rate and wait a couple of month. It's a real pickle right now. 

Userlevel 7
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Actually @Wilson02 , it’s only £30 per fuel with OVO - and does not apply to Simpler Energy as it’s a variable rate tariff. Some suppliers might do £60 per fuel, but OVO doesn’t. At least not on the current deals (you might be thinking of old ones).

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@Simon1D interesting point you make about my "dual fuel". As you say, my gas & electric both come from Ovo but have different fixed term start/finish dates due to my electricity originally being Economy 7 (dual rate) then changing to a single rate tariff part way through my original fixed term way back in 2013!! The gas contract stayed on the original start/finish date. They have never re-aligned. In this instance, it's actually working better for me I think as my gas is locked-in until June 2022. Not sure if they were aligned it would save me any money overall.

Userlevel 2

@Blastoise186 I can assure you, my 3yr fixed rate offer tariff information label is very clear. £60 exit fee per fuel. 2yr fixed rate offer (astronomically high quote) is £30 exit fee per fuel. 

Userlevel 2

Here are all my choices @Blastoise186 @Simon1D @nealmurphy @Tim_OVO @Mw2870 and exit fee confirmation. My current 2yr fixed rate deal that is just about to end is:

Current electric deal (05/12/19 to 04/12/21):

Unit rate: 15.22p/kWh 

Standing charge: 27.40p/day

Userlevel 7
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@Simon1D interesting point you make about my "dual fuel". As you say, my gas & electric both come from Ovo but have different fixed term start/finish dates due to my electricity originally being Economy 7 (dual rate) then changing to a single rate tariff part way through my original fixed term way back in 2013!! The gas contract stayed on the original start/finish date. They have never re-aligned. In this instance, it's actually working better for me I think as my gas is locked-in until June 2022. Not sure if they were aligned it would save me any money overall.

I certainly agree - as things stand, the longer you're locked into a fixed price gas deal the better. Mine runs out a week from now ... (so variable rate coming up, for me).

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Ooohhh OK, I forgot about that. I’ve never seen OVO offer three year deals before, and the one/two year deals have always been £30 per fuel. I’ll remember that in case anyone else asks. Thanks!

I guess it makes sense though, given the longer commitment both you and OVO are making if you go for it. Trust me, if you were to make that choice today, the three year deal is definitely the better choice of those two.

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@Mw2870 @nealmurphy exit fee is £60 per fuel. The exit fee doesn't worry me too much to be honest. It's very much trying to weigh up the pros and cons of whether I should lock-in now, wait until just before my tariff expires (although the fixed rate offer I'm getting now could go up or down again) or slip on to the variable rate and wait a couple of month. It's a real pickle right now. 

I've just checked what's available for me on the quote page. Only the 2 year came up with rather high standing charges. £30 per fuel isn't too bad. Might be worth just keeping an eye on these too when factoring in fixed v variable.

I think I'd be inclined to wait another month or so and sit on the capped variable until you fancy playing Deal or No Deal and take what the banker offers you then. Though I've just seen your 3 year quote and it's tempting especially with the lower standing charges. The 2 year deal is nowhere near as good.

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@nealmurphy @Simon1D @Blastoise186 it really does feel like Deal or No Deal! The 2yr fixed rate is a no no. That's obvious. The big question right now is do I go for the 3yr deal, wait a couple more weeks and see if it drops again (before my existing deal expires on 04/12/21) or slide on to the variable rate and watch what happens. Am I going to kick myself if the 3yr fixed rate deal suddenly starts going back up again. I've never faced this challenge before!!!!! Yikes 

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The black phone on the table that you never noticed rings ominously in the darkness. You answer it, just like that Noel guy used to do on some game show that you used to watch. You wish you hadn’t, when the voice that you hear causes you to cower in fear.

Well, I am also known to some as SkyNet Blastoise, and unlucky for you… I am The Banker and you are in my trap. MUHAHAHAHAHAHA!!! :stuck_out_tongue:

The Banker offers you some three year deal and says little else. You try to ask him more, but the phone simply clicks and the line disconnects, never to function again even as you desperately try to call back. I guess The Banker blocks 1471 lookups...

In all honesty, I’d take that three year deal right now if it was offered to me. Not least because it’d almost certainly last me for all the time I’m planning to stay at my current place before I think about moving out and finding somewhere new to live. It’s hard to go wrong with such a sweet deal tbh.

Userlevel 2

@Blastoise186 🤣🤣 brilliant reply. This exactly sums everything up right now. I'm trapped between playing it safe and locking-in to the current offer (valid for 7 days) or waiting a bit longer and taking a risk. Will it go up or down! If ever I needed some insider trading expert energy price advisor, it's right now! Ohhhhh the pressure 😵‍💫😵‍💫😬

Userlevel 7
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I too have fixed contract which ends early in December.

As I’m aware that others will be viewing this topic in coming weeks and months, I think I should put another option on the table.

At some point soon OVO will be offering a Time Of Use tariff. This will provide variable pricing at half-hour  intervals during the day, and requires a SMETS2  Smart Meter to achieve this.

A ToU tariff could be cheaper for those who can reschedule their electricity use to avoid times of peak-demand. Typically such customers will have one or more types of energy storage in the home.

The delays in OVO offering this tariff are technical rather than for marketing reasons. @Simon1D and I have discussed this recently on the topic Missing Smart Meter Data. Octopus already have a ToU tariff called Agile.

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The delays in OVO offering this tariff are technical rather than for marketing reasons. @Simon1D and I have discussed this recently on the topic Missing Smart Meter Data. Octopus already have a ToU tariff called Agile.

I looked at Agile recently. The problem is that you really need to “work” it for it to be really worth-while. This means some changes to the way your familiy do things. For us, we decided early-on that it wouldn’t really work. Of course, you also need a smart meter which we don’t yet have.

 

We are on a 1 year “member special” deal until March. I’m no expert in energy prices but the capped variable deal seems pretty good for eletricity. I guess the main thing is whether you need to stabilise your outgoings or could live with some variability? Also, I thought the recent government announcements were in part about focus now on electricity supply rather than gas? Does that mean that electricity is set to come down in price still further?

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@knight Agile was brilliant in 2020 with low network demand meaning low wholesale prices. I think I averaged around 5p/kWh that year. Now, with wholesale prices remaining high it’s just not viable unless you have solar+storage to make the most of outgoing payments. Hopefully the market changes again next year as the idea behind TOU is good.

I’ve been monitoring the available 12m fixed tariffs to get an idea of movement in prices. Back in October when prices started to spiral, in my area, unit prices were electricity 26.2p / gas 6.0p. This rocketed to 35.6p and 10.6p towards the end of October. The first November tariff saw a decrease to 29.8p / 7.2p and now it’s almost back to the start of October levels at 27.0p / 6.7p. I reckon there’s probably more decreases to come before things stabilise. 

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