My energy firm is offering a fixed-rate tariff – should I lock in?

My energy supplier, Shell, is offering me a fixed-rate tariff for 14 months which I’m tempted to lock into.

Like most, I was previously on a fix until I was shunted onto a variable tariff earlier in the year.

Currently, my energy bill for my three-bed semi is £162 per month. The unit rate for electricity is 30.72 p/kWh with a 43.65p per day standing charge.

Heating up: Energy bills are set to fall slightly from October 1, but remain at around £2,000 a year for the average household for months to come

For gas, the current unit rate is 7.398 p/kWh with a 29.11p standing charge.

With this fix Shell is offering, electricity would be a slightly lower 30.0010 p/kWh, but with a slightly higher standing charge of 44.81p.

For gas, it’s a slightly higher unit rate of 7.5040p p/kWh but with a far lower 18.28p standing charge. These are both guaranteed until 30 November 2024.

I believe variable rate energy deals will not fall any time soon. So should I lock in – or continue to hold fire? 

Sam Barker of This is Money replies: Most households are stuck on variable energy deals regulated by the Ofgem price cap, as you are now.

This caps the average energy bill at £2,074 a year, and while this is due to fall to £1,923 on Sunday it is not exactly the reprieve we are all hoping for.

Households are longing for the return of fixed-rate deals that are cheaper than their current extortionate bills over the term of the deal. The big question for you is: are you being offered one?

The answer is ‘maybe’, but if you can cut your gas and electricity use this changes to ‘probably’. However, this comes with the caveat that no-one can be sure what energy prices will do in the future, and that’s the gamble with taking a fixed rate right now.

Let’s start with some price comparisons.

At the moment your energy bill is £1,945.78 a year.

On the fixed rate deal you are being offered, you would pay £1,903.25 a year, so £42.53 a year less than you pay now – albeit for 14 months, not 12.

On the face of it, that does not seem like a particularly good deal, although an extra £43 a year is not to be sniffed at. But this fixed rate might be able to offer you even bigger savings than this, for two reasons.

Firstly, energy bills are likely to stay high, with standing charges rising and unit rates falling slightly over the next year. 

Secondly, this fixed rate tariff is very generous on standing charges, which could work out in your favour.

All of this depends on what energy bill prices do over this 14-month term.

Sadly, there is no way of being certain about this. Certainly Ofgem does not make this sort of prediction. 

The closest we can get is the estimates made by analysts at Cornwall Insight, who have accurately predicted what the price cap will be since energy prices started rising.

Cornwall Insight thinks energy bills will riseto £2,032.66 in January 2024, then drop to £1,964.47 in April, fall again to £1,917.41 in June then rise slightly to £1,974.92 in October.

In other words, energy bills will be around the level they are now for at least another year, if Cornwall Insight are correct, and maybe until the late 2030s.

The fixed rate you are being offered would be slightly cheaper than staying on the price cap over the next 14 months, again assuming Cornwall Insight’s predictions are correct – and we have no way of knowing for sure.

But a fixed-rate energy deal is based on your predicted energy use, although the standing charges will not vary. 

So that means if you use less energy than Shell is predicting, you can save even more that that headline £43 a year.

In particular one feature of your fix could work out in your favour. It has very low standing charges.

Cornwall Insight thinks that, while overall energy bills will drop a bit but effectively stay at around the same level as now, within that unit rates will fall but standing charges will rise.

So the terms of this fix are already good, as standing charges cannot be avoided, whereas you do have some control over the energy you use, within reason.

Currently you pay 43.65p a day for electricity standing charges and 29.11p a day for gas, or £265.57 a year in total.

That is already lower than average, as the typical electricity standing charge is 53p a day, and 29p a day for gas, totalling £299.30 a year, though this varies depending on where you live and what meter you have. 

But experts at analysts Cornwall Insight believe the typical electricity standing charge for homes on the price cap could reach 60p a day by next summer, with gas standing charges at 30p, so total standing charge bills of £328.50 a year.

This fixed rate you’ve been offered has standing charges of 44.81p for electricity and 18.28p a day for gas, or a total of £230.27 a year.

So with gas and electricity use out of the equation for now, you could save £62.93 a year alone on your standing charge bills by taking this fixed rate, rising to a saving of £98.23 a year by next summer, if Cornwall Insight are right – and it is clearly more pessimistic about the future of energy bills than Shell is.

But if you combine these lower standing charges with lowering your current average energy use then you could save even more, making the fix a very good option.

Another advantage of a fixed rate energy deal is it offers security over monthly payments and makes it easier to budget than being on the whim of a deal subject to the Ofgem price cap.

Natalie Mathie, energy expert at Uswitch.com, said: ‘Only those on fixed tariffs have the certainty of knowing what they will pay for the full term of their deal, which is usually a year. During that time, customers on standard variable tariffs will see their bills change four times.

‘A reasonably priced fixed deal could be a good option for households who want certainty over what they will pay. Fixed tariffs may be priced similar to or slightly higher than standard variable tariffs, however you will have the peace of mind that the rates will not change.

‘As the energy market remains volatile, it can be difficult to predict whether opting for a fixed deal or sticking with a standard variable tariff will save you money in the long run.

‘If you’re thinking of switching to a fixed deal, pay attention to any exit fees, which could cost up to £200 per fuel. If you change your mind after the cooling-off period or spot a better deal you wish to switch to, you may need to pay to leave.

‘The price you are quoted to pay through direct debit each month is an estimate based on your predicted usage and may not end up being the actual cost over the whole year. Remember, if you use more energy, you’ll pay more.’

This post first appeared on Dailymail.co.uk