How the Energy Price Cap Impacts Fixed Tariff Pricing

The energy price cap, set by Ofgem, helps limit how much energy suppliers can charge people on standard variable tariffs. But what happens to pricing for fixed tariffs because of this?

A lot of people wonder if they should pick a fixed energy deal or stick with a variable tariff. This question comes up because of the changing wholesale energy costs under the price cap.

How the Energy Price Cap Affects Fixed Tariffs

The energy price cap changes every three months. It only applies to standard variable tariffs (SVT). Fixed price tariffs are not part of this cap. As a result, suppliers can set different rates for customers who choose a fixed price tariff.

Here are some main effects of the energy price cap on fixed tariffs:

• Limits on pricing for standard variable tariffs – This prevents SVT customers from paying too much. It also makes fixed tariffs less attractive when the price cap goes down.
• Fixed tariffs might get more expensive – Suppliers set fixed energy deal rates based on expected wholesale energy prices. These can be higher than the current price cap level.
• Fewer fixed-rate tariffs available – Some suppliers have taken away fixed tariffs because wholesale energy costs are uncertain.
• Higher exit fees – Many fixed-rate tariffs include exit fees. This makes it costly to switch if the price cap drops later.

Ofgem says that many UK homes still use standard variable tariffs. Fixed tariffs have become less appealing since 2022.

Fixed Tariffs vs Standard Variable Tariffs: Which Is Better?

Consumers have two main choices when they select an energy tariff:

• Standard Variable Tariff (SVT) – Prices change every three months depending on the energy price cap.
• Fixed Tariff – This plan offers a fixed unit rate and standing charge for the entire length of your contract, such as 12 or 24 months.

Comparison of Fixed Tariff vs Standard Variable Tariff

A fixed tariff can be helpful if energy pricesare expected to rise. On the other hand, a standard variable tariff (SVT) is often more affordable when price caps drop.

Compare Energy Prices

Thinking about changing your energy provider?

Compare Now

Should You Fix Your Energy Prices in 2025?

The energy price cap changes every three months. Deciding to stay on a fixed tariff depends on the market conditions.

✔   When to consider a fixed tariff:

• If you want to be sure about prices and avoid changes in the market.
• If a fixed deal offers lower unit rates than the price cap rates.
• If you use a lot of energy and wish to keep costs steady.

✔   When to stay on a standard variable tariff:

• The price cap may decrease in the next few months.
• Fixed rates could be higher than the price cap level.
• You can switch without paying exit fees if you want to.

Cornwall Insight says fixed tariffs may seem more attractive if energy costs keep rising.

How Wholesale Energy Costs Influence Fixed Tariff Pricing

Energy suppliers decide on fixed tariff prices based on their predictions of future wholesale energy costs.

• If wholesale prices increase, fixed tariffs cost more.
• If wholesale prices decrease, fixed tariffs cost less.

Factors influencing wholesale energy prices:

• Global gas supply – Prices for wholesale gas can go up or down due to global events, bad weather, and changes in demand.
• Energy market conditions – When suppliers expect prices to rise, they increase fixed tariff rates.
• Renewable energy generation – A boost in wind and solar power can lower wholesale energy costs, making fixed-rate tariffs more stable.

Ofgem says that energy costs make up around 40% of the total bill for a typical household.

The Role of Smart Meters in Fixed Tariff Pricing

Smart metersare expected to change how energy prices are decided in the future. This will include fixed tariffs.

Smart meters allow suppliers to provide better fixed tariff deals by:

• Providing exact energy usage data – This helps suppliers set fair fixed prices based on what you actually use.
• Offering time-of-use tariffs – Smart meters let you pay lower fixed prices during off-peak hours.
• Reducing billing errors – Automatic meter readings prevent incorrect charges.

The energy regulator Ofgem thinks that by 2025, smart meter data will help create special fixed tariffs for customers.

How to Choose the Right Fixed Tariff

If you want to switch to a fixed tariff, here are some steps to help you find the best deal:

• Compare energy tariffs – Go to a price comparison website to check the fixed-rate tariffs available.
• Check exit fees – Some fixed tariffs might charge up to £100 per fuel if you switch early.
• Look at contract length – Most fixed deals last 12 or 24 months; longer contracts may not be cheaper.
• Monitor price cap updates – Switching before a price cap increase can help you keep a lower rate.

People in Northern Ireland, Wales, Scotland, and England may have different fixed tariff choices. This difference comes from the local suppliers in each area.

FAQs About Fixed Tariff Pricing & the Energy Price Cap

Compare Energy Prices

Thinking about changing your energy provider?

Compare Now