Are longer-term energy fixes really worth it?

Consumerist

My one-year fixed-rate energy tariff is about expire and I've been looking around for another fix to move to for next year. The Co-op Fixed March 2015 caught my eye as a good bet for me but further down my comparison list I noticed the Co-op were also offering two longer fixes - Fixed March 2016 and Fixed March 2017. These were both at higher annual costs which you would expect when prices are widely anticipated to rise in the future.

But are the increased costs of the longer fixes worth it? How do you go about finding out? I had a crack at it like this.

The results on my comparison list came out as follows :-

Fixed March 2015: £1,089 pa.
Fixed March 2016: £1,205 pa.
Fixed March 2017: £1,287 pa.

Fixed March 2016
----------------
  Cost of Fixed March 2016 over 2 years:     £2,410 (2 x £1,205)
- Cost of Fixed March 2015 for 2 years:      £2,178 (2 x £1,089)
                                             ------    
  Effective increase in second year:         £  232 (+ 21.3%)

This means that Year 2 of the Fixed March 2016 has a built-in increase of 21.3% over the cost of the Fixed March 2015. Are energy prices really expected to rise by 21% between March 2015 and March 2016?

Fixed March 2017
----------------
  Cost of Fixed March 2017 over 3 years:     £3,861 (3 x £1,287)
- Cost of Fixed March 2015 for 3 years:      £3,267
                                             ------    
  Sum of increases in 2nd & 3rd year:        £  594

If it is assumed that the annual costs increase by the same amount each year then 1/3 of the total increase will apply after the first year and 2/3 after the second year. Strictly, it would be more usual to assume the same percentage increase each year but the result should be close enough for practical purposes in this case.

Year 1:                  £1,089
Year 2:  £1,089 + £198 = £1,287 (+18.2%)
Year 3:  £1,287 + £198 = £1,485 (+15.4%)
                         -------
Adding the three years:  £3,861 the total cost over three years.

This means that an average 17% annual price increase is built into the Fixed March 2017 tariff.

Although the direction of energy prices is generally expected to be upward in the near future, I would hope I can do better than these price increases for 2015/16 and 2016/17.

Cardew

Do the those three Co-op fixed tariffs take into account the forthcoming transfer of the 'Green levy' from our bills to general taxation?




Historically fixed tariffs generally worked in favour of the customer, but the huge percentage increases you have stated make that situation unlikely in the future.


The other important factor is the ratio of the daily service charge(DSC) to kWh price and will affect high consumption and low consumption customers in a different manner. Low consumption users want a lower DSC

Consumerist

Cardew wrote: »

Do the those three Co-op fixed tariffs take into account the forthcoming transfer of the 'Green levy' from our bills to general taxation?

If I remember correctly, <Co-op reduced their recent tariff increases> based on the promise that green levies would be removed from suppliers costs; adding the caveat that prices might rise again if the green levies remain the same.

On that basis, I'd say the answer to your question is Yes.

I was, frankly, horrified at these levels of increases built into the longer tariffs and wondered whether I'd missed something.

NittyGritty

if you take the 2015 deal, ask how much extra you would be paying come the end of the deal, each and Every new tariff comes with its own price hike. you could easily end up paying over £100+ if not more for a new tariff, and that's without any price hikes coming into effect next winter, should you not take a fixed tariff.

Consumerist

NittyGritty wrote: »

if you take the 2015 deal, ask how much extra you would be paying come the end of the deal, each and Every new tariff comes with its own price hike. you could easily end up paying over £100+ if not more for a new tariff, and that's without any price hikes coming into effect next winter, should you not take a fixed tariff.

The Co-op 2015 fix (for 15 months) looks good to me but, from the numbers, the 2016 fix already has a built-in increase of £232 next year. The 2017 fix has two £200 increases built in too. They just seem a bit pricey to me.

MillicentBystander

Now that Our Ed has put the energy supplier problem into play I'm not convinced long term fixes are recommended, personally. I know it's ridiculous but the electioneering has already begun and it seems like the hot topic this time around will be those errant and pesky energy suppliers (this industry according to Which? is the most distrusted in the country - even behind the rotten Banking industry. Wow). I think there will be lots of 'initiatives' emerging in the coming months designed to ease the fuel burden on the UK's households.

Plus be wary of switching sites (I point blank refuse to call them comparison sites because the fact is if there wasn't wonga to be made by getting you to switch they simply wouldn't exist in the first place!) recommend you should do. I'm hoping there's no need for an explanation as to why...

Consumerist

MillicentBystander wrote: »

. . . I think there will be lots of 'initiatives' emerging in the coming months designed to ease the fuel burden on the UK's households. . .

I hope you're right.

One of the attractive features of the Co-op fixes is that there are no exit charges so if something better comes along, you can switch.