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

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. :)

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).

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.)

@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?

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).

@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. 

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).

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.

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!!! 

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.

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.

@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. 

Hi @elddisvogue ,

I’m Blastoise186, one of the forum volunteers. :)

It’s worth noting that fixed rate deals are not affected by the price caps, however they do reflect the true cost of supplying energy and being on them helps to support OVO, especially in the current market circumstances.

I’m afraid those fixed rate offers you’re seeing now are only guaranteed for 30 days at most, but probably more like 7 days. Given the current price cap expires in about four and a half months from the time of me writing this comment, you’ll be unlikely to benefit much from the temporarily “lower” prices as any savings will likely be gobbled up by higher prices later on.

If you go for a fixed rate deal though, you’re guaranteed to lock in the same rates for the entire term, no matter what happens to the price cap. I’d suggest going for a two year deal now as you’ll have at least 14 days to change your mind fee-free and you’ll beat further price increases until June 2024. :)

In the longer term, you are on average far more likely to save more using these fixed rate deals than you will ever save in the short term by surfing the price capped variable rate tariffs that the Ofgem Default Tariff Cap controls. It’s also worth noting that the price caps will soon be very likely to get updated every three months rather than every six months, which may further erode any possible savings from them.

One last thing to note. The most widely known price cap is ONLY a national average and does not reflect the actual price caps that apply to your area. Your actual price caps could be higher or lower than the national average and this should also be factored in when making any decisions. Likewise, the fixed rate offers will also reflect differences in cost around the UK.

My fixed tariff recently came to an end and I let it automatically roll onto the variable tariff.

I still get the prompt to switch to a fixed rate if i want to.

You will get a variety of opinions on whether you should fix for piece of mind or go onto the price cap variable rate which is cheaper until at least October. The price cap is almost certainly going up in October as an increase is already baked in, but it is not yet clear by how much or for how long. 

It appears from ofgem today that their plan is to update the price cap every 3 months so October, January, April, July. I have mixed views about this as the price cap may become even more volatile for consumers due to short term blips in wholesale prices. 

As an example of the volatility, the UK wholesale gas price has fallen and bobbed along at a lower level for about a month now, in fact it is lower than before the Ukraine crisis started, but predicting the future is full of uncertainty....