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Are fixed price energy plans a good bet?

Are fixed price energy plans a good bet?


Bord Gáis Energy has launched a series of fixed price energy plans. That might not seem like a big deal, but it’s actually a bit of a milestone because we’ve only seen fixed price deals once before in Ireland, and that was back in early 2012 when Electric Ireland introduced them to the country for the very first time.

Electric Ireland’s fixed deals weren’t on offer for long though. They only ran for a few months and were discontinued – and no other supplier has given them a go until now.

Fixed price energy plans guarantee not to change in price for a period of time - usually one or two years. And there’s usually a premium to be paid for the peace of mind: you pay a bit more now and your prices won’t go up later.

Although they didn’t seem to catch on last time around, these deals are very popular in the UK where price volatility and market confusion is actually greater than it is here (seriously!).

So now Bord Gáis Energy has brought fixed price plans back to us. They are the only supplier doing them, but it is understandable that there could be a market for them. We’ve certainly seen our share of (usually upward) price volatility over the last few years, and it is likely that prices will increase again, so there’s sure to be people that would like to hedge against those price increases.

Deciding whether or not to go for a fixed price plan is a bit of a gamble though, so it’s worth taking a look at exactly what you get for your money and whether it’s worth it.

There are two new Bord Gáis fixed price plans. A one year plan and a two year plan – and you can fix prices for gas, electricity and dual fuel. We’ll take a look at each of them and help you decide whether they might be right for you.
 

Bord Gáis Energy 12 Month Fixed Price Plan

The prices for the one year deal are exactly the same as the Bord Gáis Residential standard tariffs, with the same unit rates and standing charges for both gas and electricity. There are no discounts available for direct debit or ebilling, but you don’t have to sign up to direct debit or ebilling to get this deal either. What it will cost for a year is below:

12 month plan - annual cost for average household

€1,217 – Electricity
€993 – Gas
€2,211 – Dual Fuel
 

Bord Gáis 24 Month Fixed Price Plan

In order to fix energy prices for two years with Bord Gáis Energy, customers must pay a 5% premium on top of the standard unit rates. The premium makes this plan expensive, but Bord Gáis says that extra 5% is the cost of knowing you're protected against any price increases over the next two years.

24 month plan - annual cost for average household

€1,267 - Electricity
€1,035 – Gas
€2,302 – Dual Fuel


So the big question of course is… is it worth fixing energy prices right now?

Well, the one year plan is exactly the same as paying standard rates for gas and electricity - which is what most of us are paying anyway. So being able to fix those standard rates to protect against a future price increase may be an attractive option for some.

However, if you were to sign up to the cheapest gas and electricity tariffs right now, you’d pay €1,914, which is substantially less than both fixed plans, but those prices can go up.

Speaking of prices, it’s worth mentioning that wholesale gas prices are down about 20% on last year. And wholesale gas prices are directly related to the price of electricity because we make nearly half of our electricity with gas. Which means that price increases are not all that likely to go up in the short term. Bord Gáis knows this too. After all, they maintain the Bord Gáis Energy Index which reports on energy prices and trends.

Anyway, by paying Bord Gáis standard rates you’re already paying a €140 premium on your gas and another €157 on your electricity each year compared to the best deals in the market. So if you’re going to switch to the 12 month fixed price plan you’d need to be fairly sure that a price increase of around 13% was imminent. If you don’t think prices are likely go up by that much in the next few months, you’d be better off with a good discount rate from Bord Gáis Energy or any of the other energy providers.

The two year fixed price plan is a more expensive again, but then it is much more likely that prices will go up over the next two years. The question is, how much would they need to go up by to make the two year plan worthwhile?

And the answer is a lot. Look at it this way… if you fix for two years, you’ll pay around €206 a year more for electricity and €182 more per year for your gas than you would on the top discount rates right now. That’s quite a premium to pay for that peace of mind.

But let’s imagine that prices go up by 10% now and then another 10% in a year’s time. After all, we have seen some hefty price increases over the last few years so it is feasible. If you signed up to a couple of good discount rates now, you’d have paid €4,422 in total after two years for your gas and electricity taking those two price increases into account.

If you fixed now on the 24 month plan instead, you’d pay €4,604 after two years for the same amount of gas and electricity.

So even with two 10% increases on the price of gas and electricity, you’d still be well ahead of the game if you went with discount tariffs instead of fixed price plans. And if there were no price increases in the next two years, you’d pay €776 more on the 24 month fixed plan than you would on discount rates. Which is quite a peace-of-mind premium.

It is good to see fixed price tariffs in the Irish marketplace again though, and if they do catch on they should get better. In the UK, fixed deals used to have similar premiums, but now they are substantially cheaper than standard rates, so hopefully we’ll see that happen here soon too.

 


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