The average annual energy bills fell by 7% on 1 July for those on standard price-capped tariffs. As we move closer to 2025, many homes and businesses are debating whether or not to fix their energy prices but is this the best choice?

In this blog, we will delve into the current state of the energy market to weigh up the advantages and disadvantages of fixing your energy prices until 2025.

What is an energy price forecast?

An energy price forecast is the prediction of what the future price of energy will be at a specific point in time. Gas and electricity price forecasts are created using both quantitative and qualitative analysis. Quantitative analysis involves using mathematical models to analyse historical data and trends to identify patterns and make predictions about future prices. Qualitative analysis involves considering factors such as geopolitical events and regulatory changes that may not be easily quantifiable.

Short-term, medium-term, and long-term forecasts can be generated, spanning from several weeks to months to years. These are useful to energy producers, traders, and consumers to make informed decisions about buying, selling, or using energy. These forecasts can also be used by policymakers to inform their decisions regarding energy policies and regulations.

Benefits of fixing your energy prices:

Protection Against Rising Costs:

Stability in Budgeting: Fixing your energy prices provides a consistent rate for all your energy usage regardless of how the market fluctuates. This can be advantageous if energy rates rise over time.

Peace of Mind: Knowing you are protected against any sudden spikes in energy rates can provide peace of mind and allow better budgeting, especially during the ongoing cost of living crisis.

Avoiding Market Volatility

Predictability: Energy markets can be influenced by geopolitical events, supply chain issues, and seasonal demand spikes. If you choose to fix your energy rates, you avoid market uncertainty.

No Surprises: With a fixed rate, there are no surprises when you receive your energy bill. This predictability can be particularly beneficial for those on tight budgets or fixed incomes.

Potential Cost Savings

Locking in Low Rates: If you secure a fixed-rate plan when prices are low, you can potentially save money in the long run. For example, if energy prices rise significantly by 2025, those who are locked in lower rates won't be affected.

Drawbacks of Fixing Your Energy Prices

Missing Out on Price Drops

Inflexibility: While fixed energy rates protect you from rising costs, it also means you will not benefit from any price drops, potentially leaving you paying significantly more.

Exit Fees and Contractual Obligations

Commitment: Fixed-rate energy plans are typically contracted over a set period. If you wish to change or exit your agreement before that end period you could face hefty exit fees, limiting your options if a better deal later comes along.

Long-Term Contracts: Being locked into a fixed rate until 2025 might seem appealing now, but as circumstances change, the rigidity of a long-term contract might become a burden.

Limited Flexibility

Changing Needs: While a fixed energy rate may be beneficial for your current energy needs, this could change as your business develops or due to other factors such as seasonal changes. These changes could influence your energy use creating a mismatch between the plan and your new needs.

Market Shifts: If the energy market undergoes structural changes, such as a shift toward more renewable sources or changes in government policy, being locked into a fixed-rate plan might prevent you from taking advantage of new opportunities.

Energy price cap forecasts:

Domestic energy prices are expected to rise by approximately 9% in the run-up to winter according to experts. Typical households could see their annual energy bill rise to £1,714 a year from October 1, 2024 – £146 more per year than the current rates, which are the lowest in two years.

Energy regulator Ofgem will announce the next official quarterly price cap on Friday. The price cap is changed every three months, the cap limits the maximum price that can be charged for each unit of gas and electricity, rather than the total bill. It affects 28 million households in England, Wales and Scotland. The sector is regulated separately in Northern Ireland.

Experts claimed that the prices paid by households, although protected to some degree by the price cap, were affected by volatility in the fragile global energy market. Adding that wholesale costs, paid by suppliers, had risen by about 20% in the last few months – which will be reflected in consumer bills, accounting for about half of what customers pay.

How to Navigate the Industry Until 2025:

In our previous blog we discussed how small businesses are the most vulnerable to increases in energy prices, which means they need to do the most research and planning to act when prices rise.

With this in mind, here are some ways you can make sure you are affected much less when prices increase:

Evaluate your energy usage: Start by evaluating your energy usage to determine where you can make improvements. This will help you identify areas where you can reduce energy consumption and save on costs. Consider investing in energy-efficient appliances and equipment and implementing practices like turning off lights and equipment when they're not in use.

Embrace renewable energy: Renewable energy is becoming more accessible and affordable, so consider using it in your business. Solar panels, wind turbines, and geothermal systems are all options to consider. Not only will this help you reduce your carbon footprint, but it can also help you save on energy costs in the long run.

Stay up to date on energy regulations: Keep up with changes in energy regulations to ensure you're meeting compliance requirements. This includes regulations around energy efficiency, carbon emissions, and renewable energy.

Work with an energy consultant: Consider working with an energy consultant who can help you navigate the industry and identify opportunities for improvement. They can also help you negotiate contracts and find the best energy suppliers for your business.

Consider energy storage: Energy storage solutions like batteries are becoming more affordable and can help you store excess energy generated from renewable sources. This can help you reduce your reliance on the grid and save on energy costs.

Is Fixing Your Energy Prices Until 2025 the Right Choice?

Deciding whether to fix your energy prices until 2025 is a personal decision that depends on your financial situation, risk tolerance, and energy usage patterns. If you value stability and want to avoid the risk of rising energy costs, a fixed-rate plan could offer the security you're looking for. However, if you prefer to remain flexible and are willing to take the risk that prices might drop, a variable-rate plan might be more suitable.

Before you switch to a fixed tariff you need to understand how the Price Cap will dictate what you pay over the next 12 months – bear in mind this only really applies to one-year fixes, it's a much harder decision if you want to fix for longer.

If you're not on a fix, you're likely on a price-capped tariff, so that's what you need to compare against. The most important thing to understand is that price-capped tariffs are variable, and the prices change every three months in line with the Cap – with the latest Price Cap change taking place on 1 July, when it fell by 7% to £1,568 a year. The October 2024 and January 2025 price caps are currently expected to rise — however, this is not guaranteed.

Ultimately, it's important to carefully review the terms and conditions of any fixed-rate energy plan, considering potential exit fees, contract length, and your own future energy needs, our dedicated team of energy experts can assist with this and help you weigh the benefits and drawbacks to make an informed decision that aligns with your financial goals and energy consumption patterns.

As with any financial decision, it's wise to stay informed and regularly review your energy plan to ensure it continues to meet your needs as market conditions evolve.

Alternatives to fixing:

If you don't want to fix your energy tariff, there are other options.

Stick on the Price Cap: You can remain or move to a standard variable tariff, which is dictated by the energy regulator Ofgems energy price cap. This cap changes every three months, and will next price cap change will occur on October 1, 2024.

'Time of use' tariffs: These tariffs are specifically designed for electric vehicle (EV) users who have a home charger. It allows people to take advantage of cheaper off-peak rates, when their vantage of cheaper off-peak rates to charge their vehicles when there's less demand on the grid. With some of these tariffs, you can also take advantage of the off-peak rate for your other electricity use.

However, they can be pricey during peak times, so you need to make sure you charge your vehicle overnight when the rates are cheap or you could end up paying more for your general electricity use.