In a rising market, is it better to opt for a fixed energy tariff or not?
In the UK domestic energy prices are on the way up - according to this page from MoneySavingExpert, energy prices may rise between 50 to 100% over the next five years.
He uses this as a reason to encourage people to lock in to fixed rates now, urgently:
1 Urgent. Lock in for three years
A fix lets you lock in a price with no hikes, guaranteed. As some
experts predict energy prices will rise by 50% to 100% over the next
five years, it's worth everyone considering. The key to doing it right
is picking the cheapest fix over the period you want to lock in.
We've already seen some of the cheapest top fixes disappear, so if you
decide fixing's for you, go quick before they become even more
costlier.
It seems to me that the energy companies know better than I do what's happening to the market, so any fixed rate tariff, say locked in for 3 years, will be set up to be more or less equivalent to what I would have paid over those 3 years if I hadn't fixed. OK, so they have the guarantee that I'm locked into them (subject to an exit fee if I switch before the end of the lock), for which they might give me a small discount, but I can't see that matching the lowest tariff I can get simply by shopping around every so often.
In other words, it seems to me that the benefit (to the customer) of fixing is more about knowing exactly what your outgoings will be than about getting the cheapest deal. Is this correct, or is there something I am missing? Does the mere fact that rates are on the rise mean that fixing / locking-in a tariff now would be to my advantage?
I found this related question about mortgages which seems to back up my stance, and I think probably mortgages and energy costs have similar behaviour in that they are both long-term arrangments (I can see that the best choice for a consumer on when to make a one-off purchase would be quite different).
Although I am in the UK I think this question probably has general relevance in any country with free market domestic energy provision.
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I looked at the specific numbers that uswitch was giving me. For a 3-year fix with no exit penalty I would pay about 20% more than the current best non-fixed tariff.
For that fix to be equivalent or better, base prices would have to rise by 72% or more over 3 years, which even the most alarming expert predictions do not stretch to. So I think in this case it is better for me not to fix, and I think the Money Saving Expert page is rather inappropriately alarmist.
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