Lack of long term fixed tariffs

savers_united

I am surprised the big energy suppliers do not offer longer term fixed tariffs of 5+ years, I think BG once offered a 5 year fix but very few do, 2 years possibly 3 years seem to be the longest available, and with many on 1 year fixes having been caught in the middle of this crisis. 

Just like a mortgage it would come with much higher exit fees but does give a level of security over a longer period that like everything may pay off long term but may not, its the gamble you take for a long term fixed rate security. 

The supplier would need to secure that supply in advance so they have a price locked in, now we have seen the lows of 2020 and the highs of 2021, when things settle down a rate somewhere in between these extremes may appeal to many who are just looking for long term fixed costs.

Not sure how the energy market functions but for most things the longer you commit the better the rate. 

MWT

Much like mortgages, the offers of long term rates need to be matched with long term hedging and right now at least I doubt customers would be willing to pay the costs and the exit fees that would have to go with it.

At some point the risk of the customer leaving the supplier holding the long hedge exceeds any rational possibility of protecting it with an exit fee.

GingerTim

Just by dumb luck - as it was when my last fix ended - I did a three-year fix with EDF for electricity in July. Unit price is under the current price cap, £15 exit fee, and £220 cashback from Quidco.

It was a little more expensive than the other options in July, but I wasn't comfortable going with one of the smaller, cheaper providers. I'm mightily relieved I went for this tariff as I don't see the cap reducing in the medium term (and I don't see a fix with that minimal exit fee coming around again any time soon).

wittynamegoeshere

About two million households have found out that fixes are a one-way bet.  If the price drops you carry on paying too much, if the price rises they go bust and you end up paying more with a different supplier.

I'd expect people to be a lot less frightened of apparent risk and just go with the variable tariffs after all the current nonsense is over.  At least then you're not paying extra for a worthless false sense of security.

If any company does offer long-term fixes after all this turmoil then they're going to either be cheap, on the basis that they're intending to shut down if they lose the gamble, or expensive if they're giving themselves enough margin to survive whatever the outcome.

MWT

wittynamegoeshere said:

About two million households have found out that fixes are a one-way bet.  If the price drops you carry on paying too much, if the price rises they go bust and you end up paying more with a different supplier.

I'd expect people to be a lot less frightened of apparent risk and just go with the variable tariffs after all the current nonsense is over.  At least then you're not paying extra for a worthless false sense of security.

I would hope that people might realize that the tariff isn't the only thing to look at when picking an energy supplier, but I'm not hopeful.

The fixes I have are solid and certainly not worthless, but then I picked a supplier with solid backing and ongoing inward investment, not one formed with a £100 and a 'supplier in a box' starter kit...

Ultrasonic

I struggle to believe any long term fix offered currently would be a good deal for consumers, since surely energy companies will be being massively cautious to make sure they make a profit/don't go out of business?

Bendo

Hedging forward for 5 years would probably be astronomical at the moment as the wholesale suppliers aren't going to want to put themselves at risk with the way prices are going.

Besides that, there is still significant risk on the supplier as probably 95% of people probably get a price based on the industry average potentially leaving a supplier with far more usage that considered.

Im surprised suppliers don't have tarrifs with a fixed committed rate but usage significantly over that charged with excess fees based on the suppliers actual costs.

daaave

Bendo said:

Hedging forward for 5 years would probably be astronomical at the moment as the wholesale suppliers aren't going to want to put themselves at risk with the way prices are going.

Besides that, there is still significant risk on the supplier as probably 95% of people probably get a price based on the industry average potentially leaving a supplier with far more usage that considered.

Im surprised suppliers don't have tarrifs with a fixed committed rate but usage significantly over that charged with excess fees based on the suppliers actual costs.

https://www.theice.com/products/910/UK-Natural-Gas-Futures/data?marketId=5188705&span=1

Surprisingly, I think you’re wrong.

Forward contract for winter 2022 is about 40% of current spot price. The market is pricing in a return to relative normality once this winter/spring is over.  Long term fixes should be a chunk cheaper than shorter term fixes. In theory.

savers_united

I don't expect to see these tariffs at the minute and as already pointed out would be quite pricey. 
But I was just wondering even in the good times why long term fixes were never offered / popular.

I don't think they are risky or a one way bet, if managed correctly with a big who also generate energy themselves like Centrica & EDF then 5 years should be doable. But as I already pointed similar clauses to mortgages with even maybe an exit fee based on x percent of the term remaining.

When things return to some kind of normality I would consider fixing for 5 years at say 4p for Gas & 20p for Elec, even though only 2 years ago I was paying 2.2p and 14p respectively. Would just prefer to know where I am rather than have these spikes from time to time, based on my previous 5 years of use if I could pretty much guarantee £110 a month for the next 5 years I would go for it.