Gas and Leccy - stick or twist?

[Fretters]

I was lucky enough to get a two year fixed deal with Octopus in September 2021 which meant I was protected during the crazy price increases over the last 12 months.

The tarrif has ended now, just as Octopus are re-introducing fixed deals. They've offered me a 12 month deal which would cost me about £100 more than my current direct debit. However, if I go onto their variable rare, it'll cost me about £110 a month more.

On that logic, you'd go with the fixed, but, as things continue to settle down in the energy market and we become less reliant on Russian gas, should I hang on and see if I can get an even better fixed deal over the next few months? Or will prices just rise from here as the weather cools?

I'd appreciate people's thoughts

[jdrobbo]

Gut feeling is to go variable for now. Prices coming down and better tariffs will possibly follow. We’re on variable with Octopus and have been since last October. Yesterday, despite paying an increased direct debit over recent months due to rising prices, I returned £400 to our account. Most importantly, regardless of your choice, my biggest recommendation is to stick with Octopus. Their customer service is fantastic.

[Fretters]

Gut feeling is to go variable for now. Prices coming down and better tariffs will possibly follow. We’re on variable with Octopus and have been since last October. Yesterday, despite paying an increased direct debit over recent months due to rising prices, I returned £400 to our account. Most importantly, regardless of your choice, my biggest recommendation is to stick with Octopus. Their customer service is fantastic.

Definitely agree with sticking with Octopus, John. I haven't even shopped around as I usually would.

Thanks, mate. Variable is my gut feeling too.

[Billyblah]

Variable for the time being but as winter creeps in, demand increases, surely those variables will start to increase?
There's a line between sticking with variable and then risking a fix before prices shoot up?

[Tw@]

Gas prices on the international market are now 1/3 of the price they were in early 2022 so the prices should drop for the next year

[clarethomer]

I was lucky enough to get a two year fixed deal with Octopus in September 2021 which meant I was protected during the crazy price increases over the last 12 months.

The tarrif has ended now, just as Octopus are re-introducing fixed deals. They've offered me a 12 month deal which would cost me about £100 more than my current direct debit. However, if I go onto their variable rare, it'll cost me about £110 a month more.

On that logic, you'd go with the fixed, but, as things continue to settle down in the energy market and we become less reliant on Russian gas, should I hang on and see if I can get an even better fixed deal over the next few months? Or will prices just rise from here as the weather cools?

I'd appreciate people's thoughts

I would double check this but, Octopus don't usually tie you in to fixed deals. You can usually exit them without a fee. So on that basis, I would go for the one that is cheapest today and then simply check in periodically to see what deals are being offered later. If better deals come about you can easily change.

[Sean Dyche's Watch]

I would double check this but, Octopus don't usually tie you in to fixed deals. You can usually exit them without a fee. So on that basis, I would go for the one that is cheapest today and then simply check in periodically to see what deals are being offered later. If better deals come about you can easily change.

There is a £150 exit fee on the current gas and electricity fixed rate tariff that Octopus Energy are offering.

[Venkys4eva]

Stick! We are fixed in until nov 2024 so all the price increases have passed us by thankfully.

[No Ney Never]

This wouldn't even be a topic for me as my bill would be at least 80% less had I not have a wife in the house.
It's no coincidence that aid organisations have established that a country's economy improves if you put the money in the hands of the women. Problem is, that same theory isn't helpful to us blokes in the western world.

[Cardclaret]

I have been forward ordering gas and electric for a couple of months now for work, to partially cover the demand for autumn winter. No one has a Crystal ball but advice I have had, assumes a regular upward trend for the next two seasons.

[clarethomer]

There is a £150 exit fee on the current gas and electricity fixed rate tariff that Octopus Energy are offering.

Hence why I said double check as that never used to be the case.

For what it's worth.....

£100 more per month on a fixed v £110 on variable.

Here are the potential outcomes

Prices remain level for the next 12 months - £120 more spent on variable than fixed

Prices increase over the next 12 months - more than £120 spent on variable than fixed.

Prices decrease over the next 12 months - you are paying £10 more each month - if prices dropped from day 1 (which they wont) then they would need to drop by an amount where the kWh price recouped the £10 of energy each month just to break even. The longer the drop takes to set in, the more £10's you have spent are still being paid back before you reach break even point for your savings.

Personally, the potential reward of going variable looks much lower than the risk of fixing still. Best case scenario you are £120+ better off over 12 months versus potentially £30+ worse off over that period if priced dropped significantly enough to mean your fixed savings had eroded fully over that period.

Im not Martin Lewis but fundamentally the choice comes down to personal choice but for me and the world at the moment - I take certainty every day of the week.

[No Ney Never]

I have been forward ordering gas and electric for a couple of months now for work, to partially cover the demand for autumn winter. No one has a Crystal ball but advice I have had, assumes a regular upward trend for the next two seasons.

Probably one of the best indicators of price projection is a person such as yourself who forward orders energy for a living.
Only qualification is the quality of advice you are receiving, but assuming it's industry level good, I'd be inclined to fix my domestic usage on such advice.

[Bosscat]

I was lucky enough to get a two year fixed deal with Octopus in September 2021 which meant I was protected during the crazy price increases over the last 12 months.

The tarrif has ended now, just as Octopus are re-introducing fixed deals. They've offered me a 12 month deal which would cost me about £100 more than my current direct debit. However, if I go onto their variable rare, it'll cost me about £110 a month more.

On that logic, you'd go with the fixed, but, as things continue to settle down in the energy market and we become less reliant on Russian gas, should I hang on and see if I can get an even better fixed deal over the next few months? Or will prices just rise from here as the weather cools?

I'd appreciate people's thoughts

Our 2 year fixed rate ended 31st July ... been on a great tarrif but moved onto variable. Doesn't look like anyone offering much at the moment.

Mrs BC will be monitoring the markets over the next month or two ...

[Paul Waine]

Hi all,

Don't forget that your monthly direct debit is not your gas and electricity bill, it's only the amount taken from your bank account each month. It is calculated as an approximation of the gas and elec you might consume over a 12 months period, but it will always be adjusted up or down if you are using more or less than the numbers used in the estimate.

Clarethomer's evaluation of fixed v variable ignores that we all burn a lot more natgas in winter than we do in summer. We also use more electricity because the days are shorter and the nights longer in winter.

Don't forget the Ofgem price cap still exists, but is now calculated on a quarterly basis, whereas previously it was capped for 6 months at a time.

I'm also on Octopus. I understand their variable pricing is at present below the price cap. It cannot go above the price cap - which lasts until end September. My understanding is that the price cap doesn't apply to fixed price deals.

[Belial]

Variable probably best choice at the moment... Rates are currently being predicted to rise again around October

[fatboy47]

What a complete abortion this whole stinking system has become.

[clarethomer]

Hi all,

Clarethomer's evaluation of fixed v variable ignores that we all burn a lot more natgas in winter than we do in summer. We also use more electricity because the days are shorter and the nights longer in winter.

The quotes for both tariffs will be like for like so my evaluation was based on all things being equal.

The unit price between fixed and variable on octopus for the electricity show that the variable rate is about 2p more expensive on the electricity and the less than 0.4p more on gas. This is using the tariffs are the flexible and the fixed that I can access from the site today using my postcode.

You are right though, consumption in winter could impact my evaluation but the variable tariff prices were to drop in the months where greater use is in play, you may recoup some money back a bit more quickly purely by the consumption levels are higher but conversely if prices are higher, the fixed rate will clearly make it even better value. I still stand by my evaluation that fixed offers better value at the moment.

I also didn't consider the use of each type of energy for the OP. If they use an equal split of electricity/gas or are heavily consuming either one then there may be other considerations.

For what it's worth - I am on the tracker tariff for my Gas rather than variable rate or a fixed rate which is currently around 50% of the current price so that may be something to look at - i.e. fixing the electricity and keeping an eye on the gas but use tracker.

Makes little difference to me at this stage because my gas bill is very little at this time of the year but last year it paid off to be on tracker as it tracks the actual cost of gas daily where I paid less than the cap on average.

[Big Vinny K]

Hi all,

Don't forget that your monthly direct debit is not your gas and electricity bill, it's only the amount taken from your bank account each month. It is calculated as an approximation of the gas and elec you might consume over a 12 months period, but it will always be adjusted up or down if you are using more or less than the numbers used in the estimate.

Clarethomer's evaluation of fixed v variable ignores that we all burn a lot more natgas in winter than we do in summer. We also use more electricity because the days are shorter and the nights longer in winter.

Don't forget the Ofgem price cap still exists, but is now calculated on a quarterly basis, whereas previously it was capped for 6 months at a time.

I'm also on Octopus. I understand their variable pricing is at present below the price cap. It cannot go above the price cap - which lasts until end September. My understanding is that the price cap doesn't apply to fixed price deals.

Hi Paul
The price cap does not apply to fixed price deals only because it’s fixed !!
In all seriousness it works pretty much in the same way as interest rates as in it’s determined by market conditions and the forecast for future prices.
And like Banks the utility companies will add in their own bit of margin within that price to take into account any unexpected circumstances (heads I win / tails you lose type stuff).
Unlike interest rates the thing that is impacting the fixed rate gas and electricity tariffs at the moment is the lack of any competition. There’s very few decent fixed rate deals out there so when the odd company offers them there’s no need to make it the great deals or lead the aggregator and comparison tables as was happening only a couple of years ago. The whole market has shrunk anyway because of the companies that went bust.

In terms of the original OP my advice would be for the sake of the difference between variable and fixed I would personally not be fixing at the moment. I know some people like the assurance of being able to budget and know how much their monthly bill is going to be (and after the last couple of years with good reason) but the fixed deals out there are just not very good and every forecast that exists in the market are for a downward trend in wholesale prices.

But each to his own and you need to do what’s right for you.

[Paul Waine]

Hi Paul
The price cap does not apply to fixed price deals only because it’s fixed !!
In all seriousness it works pretty much in the same way as interest rates as in it’s determined by market conditions and the forecast for future prices.
And like Banks the utility companies will add in their own bit of margin within that price to take into account any unexpected circumstances (heads I win / tails you lose type stuff).
Unlike interest rates the thing that is impacting the fixed rate gas and electricity tariffs at the moment is the lack of any competition. There’s very few decent fixed rate deals out there so when the odd company offers them there’s no need to make it the great deals or lead the aggregator and comparison tables as was happening only a couple of years ago. The whole market has shrunk anyway because of the companies that went bust.

In terms of the original OP my advice would be for the sake of the difference between variable and fixed I would personally not be fixing at the moment. I know some people like the assurance of being able to budget and know how much their monthly bill is going to be (and after the last couple of years with good reason) but the fixed deals out there are just not very good and every forecast that exists in the market are for a downward trend in wholesale prices.

But each to his own and you need to do what’s right for you.

Hi Big V K, as you say the price cap doesn't apply to fixed price deals. However, it's necessary to state that because if (and, yes, it is "if") a future price cap is lower than the fixed price deal a customer signs up to they will not benefit from the price cap. (Whereas there are price caps for gas and power, there are no price caps for interest rates. Thus it is probably a good idea, though perhaps I am tending to be overcautious, to make sure everyone is clear about how fixed price gas/power deals differ from fixed rate mortgage deals).

Ofgem sets the gas/power price cap. Yes, Ofgem determines them from market conditions, but not from forecasts of future prices, rather from the forward prices that gas/power suppliers could have bought and locked in their future gas/power supplies during the period when Ofgem determines what the price cap will be. Ofgem also determines how much gas/power suppliers can include in their price cap for the other costs they face, including the "social costs" of somewhere around 50 gas/power suppliers defaulting on their obligations and going bust.

Gas/power supply is a tough business, just like banking it requires companies with healthy balance sheets, with the financial strength to hedge the risks they present in the wholesale markets and the energy risk management knowledge and expertise to get through the "ups and downs" of the market. The 50 or so energy suppliers that have gone bust, mostly in 2018 and 2021, did so because they didn't have the knowledge of the finances to exist in the market. It was a disasterous mistake by Ofgem (and the energy minister in the Coalition government) to allow these companies into the energy supply business. These "bankruptcy waiting to happen" companies didn't bring "competition" to the market, they just brought us all the added cost of the consequences of their failure - adding more than £100 to all our gas/power bills. Competition needs no more than 10 knowledgeable and skilled companies - and a little bit of stability, rather than the wild helter-skelter ride we've all been on these past 3 years.

My advice, for what it's worth, is to make sure your home is as well insulated as you can possibly make it. We can all seek to reduce our use of gas and power and achieve savings based on using less, it's a much more certain way of managing our expenses than wondering whether we can find a good fixed unit rate or whether variable (and capped) unit rates will be overall a lower cost.

[HunterST_BFC]

What a complete abortion this whole stinking system has become.

Half of old Ofgem's board now hold Directorships with Energy Companies...

...and guess who appointed them to Ofgem?

...I wonder who holds shares?

... I wonder who is wanting more oil and gas (most to be exported by non UK companies)

Etc Etc

I could go on.

CORRUPTION.

[basil6345789]

We're with eon and have just fixed. If/as they make better offers they inform you and you can move onto them fee-free.

[Big Vinny K]

Hi Big V K, as you say the price cap doesn't apply to fixed price deals. However, it's necessary to state that because if (and, yes, it is "if") a future price cap is lower than the fixed price deal a customer signs up to they will not benefit from the price cap. (Whereas there are price caps for gas and power, there are no price caps for interest rates. Thus it is probably a good idea, though perhaps I am tending to be overcautious, to make sure everyone is clear about how fixed price gas/power deals differ from fixed rate mortgage deals).

Ofgem sets the gas/power price cap. Yes, Ofgem determines them from market conditions, but not from forecasts of future prices, rather from the forward prices that gas/power suppliers could have bought and locked in their future gas/power supplies during the period when Ofgem determines what the price cap will be. Ofgem also determines how much gas/power suppliers can include in their price cap for the other costs they face, including the "social costs" of somewhere around 50 gas/power suppliers defaulting on their obligations and going bust.

Gas/power supply is a tough business, just like banking it requires companies with healthy balance sheets, with the financial strength to hedge the risks they present in the wholesale markets and the energy risk management knowledge and expertise to get through the "ups and downs" of the market. The 50 or so energy suppliers that have gone bust, mostly in 2018 and 2021, did so because they didn't have the knowledge of the finances to exist in the market. It was a disasterous mistake by Ofgem (and the energy minister in the Coalition government) to allow these companies into the energy supply business. These "bankruptcy waiting to happen" companies didn't bring "competition" to the market, they just brought us all the added cost of the consequences of their failure - adding more than £100 to all our gas/power bills. Competition needs no more than 10 knowledgeable and skilled companies - and a little bit of stability, rather than the wild helter-skelter ride we've all been on these past 3 years.

My advice, for what it's worth, is to make sure your home is as well insulated as you can possibly make it. We can all seek to reduce our use of gas and power and achieve savings based on using less, it's a much more certain way of managing our expenses than wondering whether we can find a good fixed unit rate or whether variable (and capped) unit rates will be overall a lower cost.

Cheers Paul.
My reference to forecasts was in relation to companies setting their fixed rate tariffs. In that way it is comparable to how banks set their own fixed rate products - whether it be lending or savings products. But as said the absence of competition and the massive reduction in customers moving suppliers means there is no real incentive for the companies to offer particularly attractive fixed rate deals - at the moment at least.
The market is in transition but I agree the decision to just let any new company with no track record or financial strength enter a market which supplies an essential service to the public was pure and utter madness.

[Paul Waine]

Cheers Paul.
My reference to forecasts was in relation to companies setting their fixed rate tariffs. In that way it is comparable to how banks set their own fixed rate products - whether it be lending or savings products. But as said the absence of competition and the massive reduction in customers moving suppliers means there is no real incentive for the companies to offer particularly attractive fixed rate deals - at the moment at least.
The market is in transition but I agree the decision to just let any new company with no track record or financial strength enter a market which supplies an essential service to the public was pure and utter madness.

My experience of both banks and energy companies is that they set their fixed rate offerings based on forward curves, not forecasts of where prices may be at a later date.

Yes, of course, when the environment is conducive to customers looking to move, both banks and energy companies will "sharpen up" their competitive positioning.

[Big Vinny K]

My experience of both banks and energy companies is that they set their fixed rate offerings based on forward curves, not forecasts of where prices may be at a later date.

Yes, of course, when the environment is conducive to customers looking to move, both banks and energy companies will "sharpen up" their competitive positioning.

Using the word forecast to mean a forward position - it’s basically where they believe the market will be in the short to medium term. Worked in a Treasury department of a major bank for a few years and it’s actually a lot more complicated than this with many other external but mainly internal factors for you to consider. The amount of work involved in setting the pricing for fixed and variable products was incredible - and when base rate is moving so frequently it’s a full time job for a lot of people and with my bank the Treasury Committee that agreed final sign off product pricing included the CEO and executive so imagine the governance and work entailed in that !!

Don’t know whether energy companies are geared up like the Banks - i doubt it very much personally

[Paul Waine]

Using the word forecast to mean a forward position - it’s basically where they believe the market will be in the short to medium term. Worked in a Treasury department of a major bank for a few years and it’s actually a lot more complicated than this with many other external but mainly internal factors for you to consider. The amount of work involved in setting the pricing for fixed and variable products was incredible - and when base rate is moving so frequently it’s a full time job for a lot of people and with my bank the Treasury Committee that agreed final sign off product pricing included the CEO and executive so imagine the governance and work entailed in that !!

Don’t know whether energy companies are geared up like the Banks - i doubt it very much personally

I spent the best part of the last decade of my working life explaining to people all over the world that a forward curve is not a forecast of where prices may be at a future date. A forward price is the price today to buy (or sell) the commodity/financial position/product/derivative for delivery at a date in the future. A forward curve is derived from many forward prices, each price representing a different date in the future. There is no "belief" in the forward price, it is the price that transactions are agreed between buyers and sellers today for delivery in the future period.

If you are familiar with IFRS13 fair value measurement (aka mark-to-market) you will understand the requirement to value forward contracts at the forward curve price on the balance sheet date.

Maybe I should post on the "what work I do/did" thread: accountant/finance manager/risk manager in oil and gas/energy sector - including the interface where major banking groups traded commodities and their (financial) derivatives with the major energy companies. All the major commodity trading entities equally require large capital resources - and are subject to counterparty risk collateral obligations. The issue with the 50 or so energy suppliers that went bust (in 2018 and 2021) is that Ofgem granted supply licences to companies with no experience of energy markets and no capital to manage the risks in these markets. We are all now paying the price in the social charges elements of our gas and power bills.

[Big Vinny K]

I spent the best part of the last decade of my working life explaining to people all over the world that a forward curve is not a forecast of where prices may be at a future date. A forward price is the price today to buy (or sell) the commodity/financial position/product/derivative for delivery at a date in the future. A forward curve is derived from many forward prices, each price representing a different date in the future. There is no "belief" in the forward price, it is the price that transactions are agreed between buyers and sellers today for delivery in the future period.

If you are familiar with IFRS13 fair value measurement (aka mark-to-market) you will understand the requirement to value forward contracts at the forward curve price on the balance sheet date.

Maybe I should post on the "what work I do/did" thread: accountant/finance manager/risk manager in oil and gas/energy sector - including the interface where major banking groups traded commodities and their (financial) derivatives with the major energy companies. All the major commodity trading entities equally require large capital resources - and are subject to counterparty risk collateral obligations. The issue with the 50 or so energy suppliers that went bust (in 2018 and 2021) is that Ofgem granted supply licences to companies with no experience of energy markets and no capital to manage the risks in these markets. We are all now paying the price in the social charges elements of our gas and power bills.

Think we are talking very different things here Paul.

I am talking about pricing bank lending and savings products.
‘Forecast” interest rates is one of many factors in deciding the pricing of products - because obviously that determines your potential margin.
But as said it is only one of many factors - liquidity ; product elasticity ; forecast attrition models ; competitor rates and even things like the prudential risk your individual bank may be being told to operate in will all be other factors. There are many more too.

As said I think we are probably talking about different things here and I’m not questioning your points as that’s not my area of expertise.