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The cheapest energy tariff is fixed for a year

Neil Faulkner
by Lovemoney Staff Neil Faulkner on 26 February 2009  |  Comments 0 comments

There's a new fixed-rate gas and electricity tariff, and it could easily be the cheapest tariff over the next 12 months.

It's been a while since I recommended fixed tariffs. When I did it this time last year, the chorus was yelling 'Don't switch!' because suppliers were still reducing prices. However, the fixed tariffs of the time turned out to be the cheapest tariffs over the following 12 months.

It's looking good now too. There is a new one-year fixed tariff that, for many customers, costs just 4% more than the cheapest available variable tariff. This will vary depending on your usage and region, but I tested quite a few regions and varied the energy usage. In all regions that I tested, medium and high energy users would pay at most 4% more. In one region it was a shade over 2% more. It was just low-energy users that sometimes paid too high a premium for the fix.

The tariff is EDF Energy annual fix v2, fixed till 31 March 2010. You have to stay with EDF for the whole period or you're charged £50. I'm not a fan of reward points, as I feel they're more likely to make people make the wrong decision. However, in this case there is no tariff (variable or fixed) that is cheaper than EDF's which offers rewards, whereas this EDF tariff gives Nectar points.

It gets better

Yes, you pay 4% more, but you're paying 4% more during the time when your usage is lowest: the summer months. (April to September, the six warmest months of the year.) When it starts turning cold, suppliers are likely hike prices as usual.

I've seen no reliable estimates of how much more energy we use in winter than summer. In any event, we're all different and so are our properties. What I do know is that my last UK bills showed that during the winter months (October to March) I used around double the energy compared with the summer months. This means my winter energy usage accounted for about two-thirds of my entire use for the year.

Let's say I get the fixed tariff now, which I reckon costs 4% more than the cheapest tariff (a variable one). Let's also say that a slightly less intelligent and not quite as good-looking version of me in a parallel universe gets the cheapest variable one instead.

Variable prices in both universes rise just 15% on 1 October. (I'm sure we all expect the annual winter increases to be more than that.) I would have been worse off by 4% during summer, where I use 1/3 of my energy. However, for the next six months, where I use 2/3s, I remain just 4% over the baseline but my buddy leaps over me, paying 11 percentage points more. Overall, my less-than-perfect alter-ego will pay around 6% more than me.

Here's the best bit: even if you use exactly the same amount of energy in winter than you use in summer, you'll still be better off with the fixed tariff.

I think that, for many people, this could be the cheapest tariff of the next twelve months. The key assumption here is that rates rise 15%. If they rise more, which I think is likely, you're even happier. If they rise less, it's possible you'll just break even, or even lose out. If you have an extremely energy-efficient and well-insulated property, your chances of winning with this tariff decreases somewhat more.

How to work out if it's a good deal for you

To estimate if this tariff is just 4% more for you:

Enter details as accurately as possible into lovemoney.com's comparison tool.  You'll see everything from the big six to utilita, Ebico and the rest, in the correct order.

When the results come, make a note of the 'Expected yearly spend' figure for the cheapest tariff. Let's say it's £1,100. Then click the button 'Price Freeze' at the top left, which will remove all tariffs from the table except fixed and capped tariffs.

Now, make a note of the expected yearly spend of the cheapest price-freeze tariff, which will probably be EDFs. Let's say it's £1,145. Deduct the first figure you wrote down from this second one:

1,145 - 1,100 = 45

Now, divide the result by the first figure:

45/1,100 = 0.04

And multiply that by 100:

0.04 x 100 = 4.

That's how much more expensive it is: 4%. I'd say that you should consider this fixed-deal even as high as 6% and, if you're worried about the cost of gas and electricity through next winter, you may consider going higher. It would not surprise me, even then, if you actually saved money. A 15% rise was a conservative estimate.

One more thing: I think there is no point waiting for all the providers' prices to change as announced in the media, because I'm convinced these will not affect the cheapest tariffs. More on that very soon. In the meantime, as soon as EDF has got its quota of customers it'll pull this fixed deal or re-release it at a higher cost. If you're interested, get a move on.

> Compare energy prices with lovemoney.com

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