Is it time to ditch the fix as energy prices start to fall?

With household energy prices now expected to fall, what should consumers who signed up to a fixed price energy plan to protect themselves from rising prices do now?

Energy prices would have to drop by £185 or 16% before consumers on competitive fixed price plans would be losing out, says uSwitch.com. Households that took out a fixed rate plan in July 2008 are currently paying £143 a year less on average than households on standard plans. However, it's not such good news for those who signed up to a fixed price plan more recently. They are paying £62 on average more for their energy than households on standard plans, with some potentially paying up to £369 over the odds for their energy.

Price increases of 42% or £380 last year saw consumers scrambling to sign up to fixed price energy plans to try to protect themselves against any further rises. At its peak, around 200,000 households a month - 45% of all switchers - were thought to be fixing their prices.

Fixed price plans work by allowing the consumer to fix their unit price of energy for a set period of time (usually a year to 18 months). Although initially this unit price can be more expensive than a supplier's standard rate, the household will continue to pay the same agreed unit rate for the duration of the fix, even if energy prices soar. So, if prices go up, those on a fixed price deal will be protected from the increases.

However, if energy prices start to fall, those on fixed price plans will not see the benefit - their prices will remain the same. If prices fall enough, they may end up paying far more for their energy than people on standard or online plans. In this case, they may want to cancel their fixed price plan and switch to a cheaper one instead.

Before making this decision, customers also need to take into account any exit penalties as many fixed price plans carry a cancellation charge. The average cancellation fee for a plan taken out on the 1st January is £58, while the average fee for a plan taken out in July 2008 is £41. This means that prices would need to fall by £143 or 14% to bring them in line with last summer's competitive fixed price plans, but they would need to drop by £185 or 16% in total to take account of cancellation fees too.

Will Marples, energy expert at uSwitch.com, says: "With energy prices set to fall, people who are on fixed price plans are likely to be worried that they will end up losing money. In fact the majority, who signed up to competitive plans earlier last year, are sitting pretty. Prices would have to come down by £185 or 16% before they would be out of pocket.

"The people who do need to worry are those who signed up to a fixed price plan towards the end of last year or at the beginning of this year. They are already paying on average £62 more than they would if they were on a standard plan and £132 more than if they moved online. As prices fall they will lose out even more.

"Fixed price deals offer security against price rises in the medium to long term. This peace of mind comes at a premium and customers must consider whether that is more important to them than the benefit of switching now to one of the cheaper online deals. Online plans will offer significant savings for many of these customers, even after paying any exit penalties that may apply."