Should you fix your electricity bills? Why I am not sure

In recent years, some personal finance advice has been VERY dependent on energy analyst forecasts. They suggest that it may be a good plan to take advantage before prices start creeping up of the new fixed rate tariffs. Is this the best way to proceed? My perspective…

Since the beginning of this month, there has been a heated debate in the money world. Should you take advantage of the fixed-rate tariffs offered by energy providers? Should you jump on the new fixed rate tariffs being offered by energy suppliers?

This is the first time in this year that energy bills have begun to drop for households. The government decided to suspend the energy price guarantee for now, as wholesale gas prices are falling. They will then return to the old status quo where the price cap set by the regulator determines the bills. The price has dropped to PS2,074, which is still higher than what it was in 2020, but it’s an improvement.

In response to the declining price cap, some energy providers have brought back fixed-rate tariffs. Analysts are making predictions about the price cap for energy over the next 6 months. Some predict that things will not get any better. Cornwall Insight, the consultancy used by Moneysavingexpert.com, has pinned its colours to the mast, saying that October’s price cap may fall slightly but then actually rise again in January.

MSE has advised people to seriously consider tariffs below the current cap on energy prices, but with the caveat of no guarantees. This makes me uncomfortable.

Why? Let’s see how Cornwall Insight has performed in its previous predictions. It predicted that the cap on energy prices in April of this year will be PS6,616 per year. The media and financial commentators were quick to pick up on this, which certainly influenced Liz Truss’s decision to introduce a universal (and expensive) energy guarantee that would cap average bills at PS2500.

Actual level was PS3,280 per year, which is more than half of what was predicted.

Even the short-term forecast for January (PS5,387) came out a little off (PS4,279). These are not small margins of error.

It is not a criticism against Cornwall Insight, because forecasting can be difficult, especially on volatile energy markets. Energy analysts will tell you that their predictions should not be taken as gospel. The media, however, often presents them as gospel. They don’t revisit these predictions enough to determine whether they were correct.

Forecasts and current trends can be used to make decisions about your energy tariffs. Be wary of claims that a fix at current rates would provide ‘certainty.’ In 6 months, a lot can happen.

The worst could happen, but the best could also come. Gas prices have dropped faster than predicted. You would feel silly if, after fixing for a year now, the cap price fell again in October.

It’s frustrating not to have concrete answers. It’s best to ensure that your energy company charges you the correct direct debit, especially during the summer when you (hopefully!) have a nice surplus. Let’s see what happens.