Revealed! The risks of fixing your energy bill

The energy price cap only applies to those on variable tariff deals. Fixed customers are not directly impacted by the price cap. Despite this, finding a fixed tariff to avoid soaring costs is far from a no-brainer. In this article, we'll explore the risks of fixing your energy deal.

How does the energy price cap work?

The current energy price cap limits the cost suppliers can charge per unit of energy on a variable tariff. Currently, the cap is £1,690 per year though 30 June 2024. Under the next cap (July - September 2024), a typical household will be charged £1,568 a year.

The energy price cap is currently reviewed four times per year. While the subsequent cap will be announced on late in August 2024, it won't impact bills until 1 October.

The energy price cap only directly impacts the bills of those on variable tariffs. For those with a fixed energy deal, the price cap doesn't have a direct impact as the cost per unit of energy is 'fixed' for customers with this type of tariff.

How high will energy costs go?

Energy costs have been falling since March 2023. Sadly, while the cost of energy is trending downwards, it doesn't look like it fall much further any time soon—especially heading into winter, when prices typically rise.

The Government has, thankfully, recognised that rising energy bills is a huge issue. It is for this reason why the Government has announced a range of energy bills support measures; however, the Warm Home Discount Scheme has closed (it will reopen in October 2024).

Is it a good idea to go for a fixed energy deal?

Last summer, money-saving guru, Martin Lewis, suggested that households fearing continued energy price hikes in future should explore the possibility of signing up for a fixed deal. We also crunched the numbers to take a closer look at his suggestion at the time.

The recommendation to consider fixing was mostly aimed at those who welcomed the thought of paying a fixed cost per unit of energy regardless of future rises. Those who wanted stability in pricing. It was also aimed at those who simply couldn't afford to pay their energy bills if prices got any higher in future.

It's worth knowing that in May 2024, there are now fixed tariffs that are cheaper than the current price cap. If prices trend up over winter, the millions on variable deals could face a bleak winter.

If you do fix now, you're essentially banking on the fact that energy costs will rise from here. This is certainly a possibility, but it's a gamble.

What are the risks with opting for a fixed energy deal?

The most obvious risk of opting for a fixed energy deal is the fact that wholesale energy costs may tumble during your fixed term. If this happens and the energy price cap drops, you could be paying a far higher cost per unit of energy than those on variable deals. While you may be able to terminate your fixed term early, you'll be faced with a hefty early exit fee (currently around £50 to £75 per fuel).

Yet aside from a fall in prices, fixing your energy deal comes with other risks too. Let's take a closer look at each of them.

Risk 1. You have to move home

If you're currently on a fixed tariff, it's likely you won't be able to transfer it to another home. So, if you move address, you may have to say goodbye to cheap(ish) energy.

Risk 2. The bill payer's name changes

Some energy suppliers simply won't honour a fixed deal if you change the name of the person on the bill. This may apply if you suffer a family bereavement for example. Or perhaps, if an individual responsible for paying energy bills in a shared property decides to move out.

Risk 3. You get moved to a prepay meter

If you're unable to keep up with your energy bills, then your supplier may have the right to move you onto a prepay meter if you don't agree to a repayment plan. This is so you'd be forced to pay for any energy in advance (which limits the risk of your supplier losing out). If this does happen to you, you'd lose any fixed deal you previously had.

Risk 4. Your energy firm goes bust

In the past few years, dozens of energy firms have gone bust due to rising wholesale costs and the low energy price cap imposed by Ofgem.

While the rate of energy suppliers going bust has slowed, it's still a risk. While you won't lose your energy supply if your supplier goes under, it's very likely you'd lose access to any cheap fixed deal you were on. When an energy company goes bust, customers are typically moved to a new supplier. Any new supplier is almost certain to charge the price-capped rate.

Looking to learn more about the cost of energy? Take a look at our analysis that looks at the average cost of energy in the UK.