Energy Price Cap vs Fixed Tariff: Which Saves More in 2025?

UK households face a choice with changing energy prices. They can stay on a variable tariff that is controlled by the energy price cap. Alternatively, they can switch to a fixed tariff. A fixed tariff offers them more stability.

As the Ofgem energy price cap predictions show that energy costs may rise in 2025, many people are wondering if a fixed-rate tariff is a good option.

What Is the Energy Price Cap and How Does It Work?

The energy price cap is the most an energy supplier can charge for each unit of energy. This cap also covers the daily standing charge for standard variable tariffs.

• Applies to: Customers who have variable rates or use prepayment meters.
• Set by: Ofgem, the energy regulator.
• Updated every three months based on the cost of wholesale energy.

🔹   Current Energy Price Cap (Jan – Mar 2025):

• Electricity: 24.86 pence for each kWh | 60.97 pence for the daily standing charge
• Gas: 6.34 pence for each kWh | 31.65 pence for the daily standing charge

A typical household that pays through direct debit spends around £1,738 each year. This amount is below the Ofgem energy price cap.

Important: The energy price cap does not control your entire bill. Your costs rely on your energy usage. This usage is measured in kilowatt hours (kWh).

What Is a Fixed Tariff?

A fixed tariff keeps both the unit rate and standing charge the same for a specific time. This protects customers from rising prices during their contract.

• Applies to: Customers who want to avoid changes in price cap.
• Set period: Usually lasts between 12 and 24 months.
• Stability: Tariff prices remain consistent for the entire length of your contract.

Important: If wholesale prices decrease, you might have to pay more than the price cap.

Compare Energy Prices

Thinking about changing your energy provider?

Compare Now

Fixed vs Variable Tariff: Which One Saves You More?

Best for: If you want peace of mind, consider fixed tariffs. If you prefer flexibility, a variable tariff that is under the price cap may be a better choice for you.

Will Energy Prices Go Up in 2025?

Cornwall Insight says the price cap will probably go up slightly to £1,785 a year by April 2025.

🔹   Factors driving higher energy costs:

• The cost of wholesale energy is hard to predict.
• Global market uncertainty exists, such as conflicts in the Middle East.
• Price cap predictions indicate that prices will change through 2025.

Key Takeaway: Picking a fixed energy tariff can be smart if its cost is less than the price cap.

Pros and Cons of Switching to a Fixed Tariff

✅   Advantages of a Fixed Tariff:

• You are safe from price hikes because the unit rates remain the same.
• This makes it easier to plan your budget since the monthly payments do not change.
• It is a good idea if wholesale prices rise.

❌   Disadvantages of a Fixed Tariff:

You could face an exit fee if you leave early. If the price cap drops, you may end up paying more than variable rates. This choice isn’t good if you use a lot of energy and prices go down.

📢   Who benefits the most from fixing?

• Vulnerable customers who need bills they can predict.
• Households that use a lot of kWh of electricity and kWh of gas.

Best Energy Tariffs in 2025: What to Look For

• Fixed Tariff: Look for plans that have low exit fees. They should also offer good long-term savings and rates below the cap.
• Variable Tariff: Go with the energy price cap if you think energy prices will drop.
• Prepayment Meters: Keep an eye on standing charges, as these can be quite high.

British Gas, EDF, and Octopus Energy have provided fixed-rate plans that stay within the price cap limits.

How to Switch to a Fixed or Variable Tariff

📢   Steps to switch smartly:

1. Use an online account to look at different energy suppliers.
2. Look at the contract terms, such as how long it lasts and any fees for leaving.
3. Watch the tariff prices and see how they stack up against price cap predictions.
4. Send in your meter readings before you make the switch.
5. Look for deals that work with smart meters.

Should You Fix Your Energy Prices?

✔️   Choose to fix your prices if you want steady prices and want to guard against high energy costs.

❌   Stick with the price cap if you believe that energy prices will go down.

Smart Tip: Look at Cornwall Insight predictions and energy supplier offers to make the best decision for 2025.