Powering the switch to green energy
Fixed tariffs are great for locking in prices at a time when energy costs are rising (as they are now), but they can also cause confusion. More and more customers are asking us why their direct debits have gone up despite switching to a fixed tariff that was supposed to save them money. In the vast majority of cases, the tariff IS saving them money – more often than not, hundreds of pounds a year. What’s changed is how much energy they’re using.
There are two parts to any energy tariff: a unit rate, and a standing charge. The standing charge is a bit like line rental – it’s the amount the supplier charges you for maintaining your meter and keeping you connected to the Grid. The unit rate is the amount you’re charged per unit of energy.
When you’re on a fixed tariff, your supplier is promising that they won’t change the unit rate or standing charge for a set period of time – usually 12 months.
This is where most confusion about fixed tariffs arises. A fixed tariff doesn’t mean that the supplier won’t change your direct debit. If you use more energy, they’ll have to charge you more.
Suppliers ‘forward buy’ the energy they sell to us as customers. That means, based on how much energy they think you’re going to use over a given period, they will commit to buying that much energy at a certain price. That then allows them to ‘fix’ the price they charge us as customers. They’re taking a gamble when they do this – if lots of us use more energy than expected, as has happened recently, then they may need to ‘top up’ the amount of energy they’ve pre-bought. If the price of energy has increased in the meantime, they may end up losing money on this extra energy, because your fixed tariff means they can’t charge you more per unit, even if you use more. They will, of course, still have to charge you at the fixed price for the extra energy you’ll be using.
The last 12 months have seen big changes in how we’re using energy at home. Home working and home schooling combined – particularly during the most recent winter lockdowns – have pushed up energy use. Homes that used to be empty during the day have been occupied. From heating our homes to keeping ourselves fuelled with tea and toast, more time at home has meant using more energy. And that means higher bills, even if you’re on a fixed tariff. That’s why so many employers are working with us to lower energy costs for their staff.
In fact, some estimates have put this increase at as much as £45 per month for some homes on the most expensive tariffs. Which brings us back to the most important thing to remember about fixed tariffs…
None of us like to see our direct debits increase – and if you’ve recently switched to a tariff that you thought was going to save you money, this can be especially galling. But if that does apply to you, try to remember that your old supplier would have had to charge you for the extra energy you’ve used too, and they’d have been charging you at a higher rate. By switching to a cheaper, fixed rate tariff, you’ve protected yourself from even higher bills.