Bills & Tariffs
Fixing an energy price buys certainty rather than a discount
A fixed contract is a hedge sold to a household, and like every hedge it is priced to be profitable for the party offering it on average.
By Tara Mukherjee3 min read
What a fixed deal actually is
When a supplier offers a fixed price for a term, it is committing to sell you energy at an agreed rate regardless of what happens in the wholesale market. To do that safely it buys the energy in advance, or buys financial instruments that behave as though it had, which locks in its own cost before it locks in yours.
That advance purchase isn’t free, and the price of it is embedded in the rate you are offered. So a fixed deal generally starts slightly above what the market suggests it should, and the difference is the cost of the certainty.
This is not a criticism of the product. It’s what a hedge is.
Fixing is not a prediction, and treating it as one goes badly
Households often approach the decision as a forecast: fix if prices are going up, stay variable if they are going down. The difficulty is that the supplier has more information, more analysts and a direct commercial interest in the same question, and their offer already reflects what the market expects.
On average, over many households and many years, the fixed and variable routes are expected to be close, with the fixed route slightly more expensive because of the premium. Individual outcomes scatter widely around that, and any particular year can go either way dramatically.
Which means the right way to ask the question is not which will be cheaper. It is how much a bad outcome would hurt.
The case for fixing is about the household, not the market
A household on a tight budget, where an unexpected increase would mean real difficulty, is buying something genuinely valuable when it fixes. Predictability has a worth of its own, and paying a modest premium for it is a rational choice rather than a failure of nerve.
A household with flexibility, savings and the ability to absorb a bad quarter is in a different position and can reasonably carry the risk. Over a long enough period that household is likely to come out slightly ahead, and it should expect some uncomfortable months along the way.
Neither of those is the clever answer. They are just different circumstances producing different sensible decisions.
Generation and storage change what you are fixing
A solar household is fixing a smaller quantity of imported energy than its neighbours, so the absolute exposure to a price move is lower and the value of the hedge is correspondingly reduced. The fixed daily charge is usually the larger part of what remains, and that component is fixed in most contracts anyway.
A battery changes it further, particularly where the household relies on a difference between cheap and expensive periods. Fixing a flat rate removes that difference, and with it the entire reason the battery earns anything. Losing sight of this is one of the more expensive mistakes available to a storage owner.
So the relevant question for a generating household is not merely what the fixed rate is, but whether the fixed product preserves the structure the rest of the system depends on.
Exit terms and export arrangements are the fine print that matters
Fixed contracts commonly carry a charge for leaving early, which is the supplier recovering the cost of energy it bought on your behalf and now cannot use. That is reasonable in principle and occasionally punitive in practice, and it is the clause worth reading before the headline rate.
For a household with an export arrangement there is a second question, which is whether the export payment is tied to the import contract or independent of it. Where they are linked, switching to a better import deal can quietly change what you receive for generation, and the two have to be assessed together.
Ask before signing rather than after. Suppliers answer this readily, and the answer differs between them more than most people expect.
A defensible position without a crystal ball
Fix when certainty is worth more to you than the expected small saving, keep the term shorter rather than longer if you are unsure, and check what leaving costs. Then stop looking at wholesale prices, because watching them after the decision only produces regret in one direction or smugness in the other.
And if you have storage or a time-varying arrangement that is working, weigh very carefully before trading it for a flat rate. The certainty may cost considerably more than the premium printed on the offer.
Common questions
Should I fix if prices are expected to rise?
Expectations of a rise are usually already reflected in the fixed price being offered, because the supplier hedges against the same expectation before quoting. That makes fixing a poor way to outguess the market and a good way to remove uncertainty from your own budget. Decide on the basis of how much a bad outcome would hurt rather than on a forecast.
Is a longer fixed term better?
A longer term extends the certainty and usually costs a larger premium, since the supplier is hedging further out with less information. It also locks you in for longer, which matters if your circumstances are about to change or if you are considering solar, storage or an electric car. Shorter terms are the safer default when anything about the household is in flux.
Does fixing affect what I am paid for exported electricity?
It can, depending on how your supplier structures the two arrangements. Some treat export as a separate agreement that is unaffected by the import contract, and others link the two so that changing one changes the other. It is a direct question worth asking before committing, because the answer is not consistent across the market.
Contributing editor, Power Your Roof
Tara writes about solar basics, batteries, bills & tariffs, mostly the parts other people skip and is happiest when a piece answers the question completely.
