Should I end fix early and refix for 24 months in the light of the Gas price spike?

michaels

Is it worth going for a long gas fix even though it will cost more right now?

I have a fix to March 22.  I cold refix now for 24 months and pay £20 more per month (about 25%)

Gas prices are up from 15p/therm a year ago by 6x/500% to 90p/therm and more than doubled since I fixed so there are likely some pretty eye-watering increases in the pipeline unless they fall back again.

Is it worth paying an extra £180 up to next March to give piece of mind/protection for the 15 months thereafter?

QrizB

Yes

michaels said:

Gas prices are up from 15p/therm a year ago by 6x/500% to 90p/therm ...

Gas is not up 6x, at least not if you believe the chart at ICE:

https://www.theice.com/products/910/UK-Natural-Gas-Futures/data?marketId=5101974

Gas is 90p now but the lowest it's been in the last 2 years is 27p. Thast's a 3x rise not 6x.

Futures contracts for Summer 22 are currenty trading at 58p, so the market expects the gas price to fall after winter (like it usually does).

Edit to add: I'm pretty sure I voted "no", I don't know why it's showing up as a "yes"!

[Deleted User]

Looking back at the wholesale gas price on the Octopus Tracker tariff, on the 10th July 2020 it was 1.113p/kWh. A year later (that is, today) it is 3.113p/kWh. Remember that the wholesale price of gas only accounts for 40p in every £ that we pay.

I am not a great fan of long-term fixes. Any supplier worth its salt will have factored in its forward projection of prices. It is worth remembering that a £20 increase over the one year fixed price is equivalent to one year on fixed price now followed by a £40 increase next year. It is worth working out what % increase this comes to.

Shedman

No

Very rough maths would suggest, based on your estimates of a 25% uplift in cost if you changed your fix now, that gas prices would have to have increased by around 40% by the end of your current fix for you to be better off changing now.

You will have roughly 8 months left on your current fix by the time a switch would have completed (end July).  You appear to be spending £80 a month on gas as you say it would increase by £20 a month and that is a 25% uplift.   Therefore, the new fix would cost £100 x 24 = £2400 to Jul 23.  The current fix will cost £80 x 8 = £640 to Mar 22.  That would mean a new tariff starting in Mar 22 then would have to cost more than £110 a month (£1760/16) or 37.5% for you to be worse off than switching now.  Plus presumably you would have early termination fee to pay on current fix which would make the calcs even more in favour of staying on your current fix.

spot1034

I am kicking myself for not going for a two year fix with Zog which would have taken me through to early 2023. It was more expensive that the one year fix I actually went for, however no one was predicting the eye-watering increases in wholesale prices we have seen over the first half of this year. 

Prices in this market are very volatile and could just as easily fall back sharply. After such a steep rise I would say it is more likely that we will see a correction in the next period, which might well mean there are some better deals in a few months as opposed to those on offer now. However that is just my opinion based on years of watching financial markets.

Basically, your guess is as good as mine or anybody elses, but do not assume that a period which has seen a sharp increase in prices will automatically be followed by more of the same.

spot1034

If only you could predict the weather in the northern hemisphere this coming winter. If it's cold, prices could well still be high when you're renewing early next year. If it turns out to be milder than average they won't be able to give the stuff away and you might well get a better deal than you could get right now.

michaels

Yes

All true but the exit penalties are relatively small at £30 so in a way taking a long fix now is an option as I can stay on the long fix or move to a cheaper deal if prices fall again.

My guess is the fixes available now at 25% more than my current fix are not in any way reflective of the current spot price (and there is only one two year fix available at this level, most are 25% more again).

michaels

Yes

QrizB said:

michaels said:

Gas prices are up from 15p/therm a year ago by 6x/500% to 90p/therm ...

Gas is not up 6x, at least not if you believe the chart at ICE:

https://www.theice.com/products/910/UK-Natural-Gas-Futures/data?marketId=5101974

Gas is 90p now but the lowest it's been in the last 2 years is 27p. Thast's a 3x rise not 6x.

Futures contracts for Summer 22 are currenty trading at 58p, so the market expects the gas price to fall after winter (like it usually does).

Edit to add: I'm pretty sure I voted "no", I don't know why it's showing up as a "yes"!

Dolor said:

Looking back at the wholesale gas price on the Octopus Tracker tariff, on the 10th July 2020 it was 1.113p/kWh. A year later (that is, today) it is 3.113p/kWh. Remember that the wholesale price of gas only accounts for 40p in every £ that we pay.

I am not a great fan of long-term fixes. Any supplier worth its salt will have factored in its forward projection of prices. It is worth remembering that a £20 increase over the one year fixed price is equivalent to one year on fixed price now followed by a £40 increase next year. It is worth working out what % increase this comes to.

This was the pricing index I was looking at:
Natural gas - BBC News

What is the wholesale = 40% of total bill based on please.  Does it take into account standing charges which I already consider separately?  I am currently paying about 2.6p/unit taken out during Feb, 40% of this would be 1.04p for the gas and1.56p for everything else.  If wholesale prices have doubled since then are you suggesting that the unit price would only go up to about 3.64p/unit if all the 'other' parts of the bill stay the same?

[Deleted User]

A picture saves a thousand words. Wholesale costs do not include standing charges: these are the costs of getting the gas to your home.

Yes, if the wholesale price doubled then this would translate in higher unit costs as follows:

Unit Cost is 3p/kWh of which 1.2p/kWh is the wholesale cost of the energy supplied. If the wholesale cost doubled to 2.4p/kWh then the new cost per kWh to you would be 4.2p/kWh.

NB: there are reports that the Government is going to make an announcement of Monday to add some form of carbon tax to gas. It is unclear whether a fixed contract would provide any consumer protection. The aim is to make electricity look cheap so that consumers ditch their gas boilers and install heat pumps.

michaels

Yes

[Deleted User] said:

A picture saves a thousand words. Wholesale costs do not include standing charges: these are the costs of getting the gas to your home.

Yes, if the wholesale price doubled then this would translate in higher unit costs as follows:

Unit Cost is 3p/kWh of which 1.2p/kWh is the wholesale cost of the energy supplied. If the wholesale cost doubled to 2.4p/kWh then the new cost per kWh to you would be 4.2p/kWh.

NB: there are reports that the Government is going to make an announcement of Monday to add some form of carbon tax to gas. It is unclear whether a fixed contract would provide any consumer protection. The aim is to make electricity look cheap so that consumers ditch their gas boilers and install heat pumps.

Thanks for this.

My understanding is that a lot of green commitments (such as the FIT for PV) is currently paid for by a levy on electricity which is rapidly becoming a much cleaner fuel than gas so it makes little sense for prices to favour gas over electricity.  However I suspect the carbon tax on gas will be new rather than moving 'tax' from electricity to gas.  Supposedly there will be an offsetting payment to mid/low income households so on average they won't be worse off.  I can't see utilities with fixed term contracts being forced to swallow the extra - wouldn't they go bankrupt en masse?

bristolleedsfan

michaels said:

  If wholesale prices have doubled since then are you suggesting that the unit price would only go up to about 3.64p/unit if all the 'other' parts of the bill stay the same?

Current Gas energy cap rate for my region is about 3.34p ( South West Region it is around 3.45p), whilst energy cap does not apply to fixed rates, many providers are committed to keeping tariffs below energy cap, October is likely to see increase in energy cap to around 3.69p ish subject to regional differences

Octopus tracker that was referred to in an earlier post, wholesale price average across UK 3.113p/kWh, tracker rates for my region today 4.75 p/kWh with BN and BS Postcodes 4.84 p/kWh