how do fixed price energy deals work?

    these confuse me tho i think it may just be me!

    i am looking at deals and you pay a set amount say 125 per month.

    what happens if you use more energy or less energy than £125 worth??



    What is a fixed price energy tariff?
    Fixed price gas and electricity tariffs guarantee that the cost of your energy will not go up for a set amount of time. Depending on the tariff, your energy rates could be fixed for anywhere between one and four years.

    It is important to note that selecting a fixed price energy plan does not mean you will be paying the same amount for your energy bill each month. Your energy unit rates are frozen, so if you are on a fixed plan and you use more energy one month than another, the bills you will receive will differ accordingly. However, the rate you pay for each unit of energy will be frozen for the duration of the contract.

    Since the latter months of 2013 a flurry of short and medium term fixed price plans have taken over the ‘best buy’ energy charts. Some of these deals provide the best of both worlds and offer the protection of fixed prices and competitive market rates. They often appeal to those looking for a medium or short term solution to avoiding energy price rises and offer great value.

    On the other hand, fixed price energy can also be more expensive than the cheapest online energy tariffs, particularly if you are considering a long term deal. Fixed price plans also sometimes include cancellation fees, which you will have to pay if you decide to switch tariff before the end of your contract.

    If you’re considering switching to a long term deal, i.e. one that fixes your unit rates for at least two years, selecting a fixed price gas and electricity tariff might be a gamble. If energy prices rise you stand to make some big savings, but if they don't, you could end up paying over the odds and faced with steep cancellation fees should you decide to switch.

    A fixed deal is just that the tariff is fixed. The company will estimate your future useage & set a payment of so much a month, if at the end of the year when they read the meter you have not paid enough they will increase your payments, if you paid too much, they will reduce the payments.

    A fixed tariff deal for so many years really depends on whether you think energy prices will go up, but I think these fixed deals are slightly more expensive, but you might be well advised to go to comparison websites for the best deal for you.

    The fixed price refers to the the amount you pay per kwh, this will not rise for the period of the fixed rate, as for the monthly amount you pay, you can opt to pay the bill monthly or quarterly and it will vary depending on how much electricity you have used in the period. You can also opt for a yearly payment plan where your monthly bill is based on the average usage for the previous year divided by 12, if you use more or less than the estimated yearly total the difference will be billed or refunded at the end of the year and the payment adjusted for the following year.

    In a sentence, op, with a fixed deal you're fixing the price per unit (kwh) of energy until the fixed deal ends.

    If you look on your gas or electricity bill ... it will show the unit price. This is the price per unit that you pay for gas or electricity. By fixing the price you are fixing your rate (as of the date you sign up) for the specified period on time.

    The way energy companies calculate direct debits is basically based on the last 6 months meter readings. They then project and estimate what your consumption will be for the next 12 months. This is shown on your bill. To work out your minimum DD rate they divide the estimated 12 month consumption by 12 to give a monthly figure. In addition to this if you owe any money from previous bills they add that on top of the 12 month consumption first before dividing by 12. EG: if you are estimated to use £1100 energy and have an outstanding balance of £100 on your account ... your minimum Direct debit would be £100 a month (unless you pay off the £100) then it will be reduced. By law the company can't go lower than the estimated consumption rate.

    That is how nPower calculate it as I work for them.

    Normally its good to fix your price if you think gas and electricity prices will increase in the future. It's hard to say if it will as no one can predict the future. If the price rises above your fixed unit price and you're on a fixed term tariff then your price will not rise ... and you 'save' money. If however the price or gas or electricity reduces ... you still will pay the fixed rate and so lose out. Most companies don't have a clause so you can just ask to come off the fixed rate if the price goes down.

    Hope this helps
    Edited by: "krazyasif786" 28th Jul 2014
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