Ofgem has confirmed that energy prices will rise by a shocking 80% this October 2022, with average annual household bills exceeding £3500. Unsurprisingly, people are worried and outraged. To assist you in doing the best you can in this situation, we’ve pulled together the key considerations you need to think about to navigate the very turbulent gas and electricity market.
What is the energy price cap?
Unlike its name suggests, the energy cap is not a cap on the overall amount an energy company can charge you, but a cap on the unit price of gas and electricity. If the price per unit goes up, it's very likely your bill will too. Your overall annual bill could be more or less than the £3500 we’re hearing about in the latest news, depending on how much energy you use. This cap limit is set by Great Britain’s independent energy regulator Ofgem every six months, but soon this will be changed to every three months. Read more on the energy price cap.
How does a fixed energy deal work?
If you stick with the energy provider you’ve always been with, you’re likely to be on what’s called a ‘standard variable tariff’ which means your bills will change in-line with the price cap changes
What you can do, is shop around with new providers or ask your current one for ‘fixed rate tariff’ deals instead. Meaning, you will lock yourself into a fixed contract price that won’t change with the price cap fluctuations – however keep in mind these contract prices are currently very expensive.
Should I fix my energy bill?
According to Martin Lewis of MoneySavingExpert.com, currently there are no fixed tariffs meaningfully cheaper than the price cap, however there are tariffs available that ARE cheaper than the predicted October cap increase. His rule of thumb is: “If you're offered a year's fix at no more than 145% above your current price-capped tariff, or 150% more if you very strongly value budgeting certainty, it's worth considering.”
We’ve run the maths too, and if you want certainty for your budget for the foreseeable future, fixing might be best for you. But keep in mind you will pay more in the short-term. If you are in doubt, it’s okay to stay on the price cap but try to prepare the best you can for your bills to increase in October.
Your household is different to others
Energy comparison websites can be useful, but it's very important to compare energy prices for your individual household.
As fixed tariff offerings are changing very quickly, much of the information you see online and in articles is based on forecasting and averages, the real prices you will be charged depend on where you live and how much energy you use. Make sure you get electricity and gas quotes that are unique to YOU.
Don’t forget to check exit fees. Many of the fixed tariff offerings you’ll see available are for existing customers only and if you switch providers without reading the fine print you could be up for expensive exit penalty fees.
Government support to help you pay your bills
Follow the latest news and check to see what Government energy support is available to you. Most UK households will be receiving a £400 energy rebate in October (this will not need to be repaid), and eligible vulnerable households will receive an additional one-off payment of £650, paid in two lump sums in July and Autumn 2022.
The reality is, this can all feel very overwhelming but please don’t bury your head in the sand. Take the time to research your options and decide what’s right for you. By considering your options you can be confident with what you choose.