With energy prices continuing to rise, people are looking at ways to cut down their energy bills. Many people are turning to fixed-rate tariffs as a way of protecting themselves from the volatility of the market.
And if you’re not a fan of constantly looking for the best deals, and trying to keep up with constant price changes and promotions, then why not fix your gas or electricity prices until 2023?
You might ask yourself, “Should I fix my business energy prices until 2023?”’ But before you do that, let’s look at some factors you need to consider as a consumer.
What will happen to energy prices in 2023?
The future of energy is changing. The UK government has announced its decision to fix energy prices until 2023.
This means you won’t have to worry about fluctuating gas and electricity prices for the next five years.
Therefore, there will be limits on the number of money suppliers can make from selling energy contracts. There may also be restrictions on what they’re allowed to charge for defaulting customers who haven’t paid their bills or switched providers within a specific timeframe.
You may think this sounds great for consumers. Still, there are some downsides, too, because “fixing” your energy prices could mean locking yourself into an expensive contract for longer than necessary and missing out on better deals elsewhere.
So what do you have to consider if you plan on “fixing” your energy prices?
First, you have to check your current energy tariffs. What are the different types of gas and electricity tariffs? Let’sLet’s discuss each one below.
What is a Fixed Rate Tariff?
A fixed-rate tariff is an agreement between you and your energy supplier to set your energy price for a certain period.
The contract length can vary from 6 months to 5 years, but most people choose 12 months because it means they don’t have to worry about changing their supplier frequently.
Fixed-rate energy tariffs are also popular among consumers. Still, they can be restrictive and may not always be the best value because they are usually more expensive than variable rates.
So if you’re on a fixed tariff and your supplier raises its prices, there’s nothing you can do about it.
What is a Variable Rate Tariff?
On the other hand, a variable rate tariff is one where the energy price is calculated using an index such as wholesale prices or wholesale costs.
Depending on these factors, your energy supplier will change how much they charge you.
The benefit of this tariff type is that it gives customers an incentive to save energy by making them pay less if they use less electricity or gas each month and more if they use more than average amounts.
But, one of the risks includes paying too much when wholesale prices rise and not paying enough if prices drop during certain months or seasons, especially when demand falls.
Why have business energy prices increased? And what effect has this had on the Energy price cap?
Energy prices have risen over the last few years due to several factors. This includes the following:
Oil and gas prices have increased significantly over the past few years.
The cost of electricity has increased by an average of 4.5% each year since 2010. This is because there is less supply than demand for these products, which means more competition for them on the market. This drives up the price that we pay for them, as well as their production costs.
In addition, this is partly due to the increasing cost of running and maintaining the national grid and government policy changes.
The fall in the value of the pound sterling after Brexit.
This means it costs more to import fossil fuels from around the world needed to generate electricity, leading to higher consumer prices.
The cost of transporting fuel across Europe has also gone up due to the low value of the pound sterling.
More expensive renewable energy investments, such as solar panels and wind turbines.
The government has introduced policies such as the Renewable Heat Incentive (RHI) scheme that encourages businesses to use renewable energy sources instead of fossil fuels like coal and gas.
These technologies are becoming more efficient and cheaper to run, and they are great for the environment but require significant capital investment upfront.
So companies need to pay more for their electricity as they turn towards greener options such as biomass boilers or solar panels.
Increased competition between energy suppliers trying to win new customers.
More suppliers are now offering better deals on tariffs and packages than their competitors, particularly around Christmas and New Year when people are thinking about changing providers.
This is one of their ways to get their hands on as many new customers as possible.
What is the effect of increased business energy rates on the energy price cap?
First, let’s discuss what the energy price cap is.
The energy price cap was initially introduced in January 2019 as part of Ofgem’s efforts to protect consumers from rising gas and electricity costs in the short term.
In addition, the government introduced it to help protect customers against unfair or misleading charges by energy suppliers.
Overall, it’s suitable for households and businesses because it sets the legal maximum for what suppliers can charge you for your gas and electricity consumption.
However, you must note that this cap does not apply to all types of business customers. It only applies to those who have not signed up for a fixed-rate contract or have not chosen an energy supplier.
So, if you are already on a fixed rate contract or have chosen an energy supplier, your rates may still increase above 4%.
What should I do if my fixed tariff expires?
If you’re you’re on a fixed tariff and it expires, there are two options:
Stay on your current deal.
If you’re happy with your supplier, you don’t need to do anything. This could be cheaper than switching suppliers.
Switch to a new supplier.
You could switch to a new supplier if you want a better deal. However, you may have to pay an exit fee (depending on how long it is until your contract ends), so check this with your current supplier first.
If you decide to switch, the new supplier will send you an exit letter before your contract ends, explaining what happens next and when they expect to take over direct debits from your bank account.
So, if you’re considering buying your gas or electricity from a supplier that’s not your current supplier, you must know what happens when you break your contract.
The government has introduced an “exit fee,” which means that if you leave one supplier for another before 2023, you may be charged for leaving early.
This fee was introduced as part of their efforts to maintain competition in the market so that consumers can benefit from lower prices on their energy bills in future years.
Final Thoughts
Before deciding to fix your energy prices for the next few years, there are many considerations.
The first thing you need to do is work out whether it will save you money. Fixed-price energy deals are typically cheaper than variable ones, depending on how much electricity and gas you use.
So please have a good idea of how much energy you use and how much it costs. If you know that, you can work out if it would be better to fix your prices now or wait until the end of the year.
If you use a lot of energy, it might be worth looking into fixed prices– for example, if you have a large family or run several appliances simultaneously.
However, if you are a low-energy user, it may not be worth paying more for less power.
Many factors can affect your bill, so check this article to understand them better to decide whether to fix your energy prices or not.