More energy price rises

One more sign of increasing energy prices next year.

Energy companies are quite canny with fixed tariffs. They'll be better than us at forecasting future energy prices, not necessarily because of their contacts and secret wholesale costs, but because they put up prices whenever they can get away with it, and they know better when that time is coming.

This means we should treat fixed deals with caution. Consider the fixed-price deals right now:

Fixed tariffs available to a dual-fuel user

(showing the cheapest tariff from each supplier that is available to a high-energy user in Farnborough)

*All tie-ins are cancellation charges that you'll pay if you switch before the end of the fixed deal, except for npower's two fixed tariffs. npower's penalty is a loss of cashback that you'd get after 12 months.

The Cost column shows the total estimated bill for this high-energy user. It includes all cashback and discounts that apply after a year, because the vast majority of people switch less than once a year. (All energy comparison sites also include annual discounts and cashback in their quotes, as per the rules agreed in their code of conduct.)

The Fix until column is how long the fixed-deal lasts before you're moved to an expensive variable tariff.

The Tie-in column tells you the penalty you'll pay to leave before a specified date. That date is usually the end date of the fixed deal. You shouldn't pay a penalty if you leave a deal as a result of a home move (but it may be that you'll still face loss of significant cashback in the case of npower).

How do these compare?

The cheapest tariff varies depending on where we live and our usage, so you should run your own energy comparison. The cheapest fixed tariff for my high user, shown in the table above, is E.ON Fix Online v3, at £1,300. For comparison, the cheapest variable tariff for this person is first:utility iSave dual fuel v1, costing £1,260.

That fix seems a good price. Paying £40 more in one year doesn't seem like a great premium for security. The timing also seems pretty good. It's nearly winter, which means we should be switching now, so that we can get cheaper prices just as we need our heating and lighting more.

Can you sense the 'however' coming? There is one, but first let me talk a little about prices.

Energy companies raise prices

Historical price changes confirm that suppliers will always try to raise prices as much as they can, when they can. It's what energy companies do best. In particular they try to raise them as winter arrives. It would have been too dangerous for them to try this strategy this year, because they were out of arguments for doing so, but they usually have quite a few arguments and are already talking about the next rises and how quickly they must bring them in.

They will have many excuses to raise prices throughout 2010, such as rising oil prices, the massive need for infrastructural investment, and investment in greener technologies. I would expect suppliers to raise prices at the earliest opportunity next year, which means as soon as they've got people and the regulator used to the idea that prices must rise.

Evidence of winter 2010 rises

Remember I said the fix seems a good price but you should expect a 'however'? Well here it is. However...

In the table above we have more evidence that we can expect some big increases sometime after summer next year (which isn't to say we won't have rises before then, too). Do you notice something strange about the lengths of the fixed deals? As you go down the table, the cost gets higher, but the fix gets shorter. Surely it should be the other way round? Prices are expected to rise over the longer term, so longer fixes should cost more, right?

Yet the cheaper deals are longer, tying you in until winter 2010 is in full swing. However, the deals get more expensive the earlier they end. The cheapest ends in December, the one ending in September costs £200 more, and those ending in summer cost £300 more.

This says to me that suppliers are expecting prices to go up after summer 2010. They're happy for you to take the longer deals, because you'll come off your fix right in time to land on the most expensive variable prices during peak usage season. If you take a shorter deal, you'll be in a more flexible position whilst prices are shifting, but you'll be forced to pay a higher price in the meantime.

Perhaps in December some suppliers will score good PR by telling those coming off fixes that they won't increase their tariffs (or not by as much as standard users). That may sound nice to the customer, but it may simply be because they already paid over the odds for a year.

Remember, the energy companies are likely to know better than us what to expect in the future, so we have to look hard to find the rare fixed deals that end up saving us money. I think that the cheapest fix in my table, E.ON's, might just be cheap enough. It is just £3 extra per month after all. The rest look expensive.

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