Experts are warning families to think twice before they fix their energy rates as new deals start to appear before the new price cap comes into force on July 1.
Fixed tariffs virtually disappeared once energy prices started to soar in September 2021, and apart from a handful of customers who were lucky enough to sign up for a long fix at least 18 months ago, most customers are now paying for their energy at the Standard Variable Rate (SVR).
The SVR is set by regulator Ofgem's energy price cap, but since October 2022, the Energy Price Guarantee (EPG) has limited the amount households can be charged per unit of gas or electricity, as well as on the daily standing charges. The EPG has given a set discount on Ofgem's price cap to bring bills down to £2,500 a year for a typical household paying by direct debit until June 30. For those who pay on receipt of bills, or use a prepayment meter, the cap is slightly different..
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Confusion stems from the fact that the energy price cap and the EPG are two systems that have the same purpose - capping unit rates and standing charges for standard variable tariffs - but run together. The important thing to remember is whichever one has the lower level is the one that suppliers will use to set their prices. The Government sets the level of the EPG in response to the price cap level and Ofgem sets the level of the price cap in response to wholesale energy prices.
Ofgem has now announced that from July 1, the energy price cap will fall to £2,074 a year for a typical household paying by direct debit, 17% lower than the EPG. As we pay the lower of the two, it means the EPG will fall away and almost everyone's bills will once again be controlled by the Price Cap.
But energy experts are cautioning against jumping in to a fix just because you can get one. Ofgem launched the Think Before You Fix social media campaign last month and Money Saving Expert Martin Lewis echoed Ofgem's advice, saying: "People need to be very careful not to just jump on a fix because it costs less than they’re paying right now."
Martin has urged families considering a fix to look at what is expected to happen over the course of the next year before deciding if they have been offered a good deal or not. Standard prices under the price cap are predicted to fall again in October, before rising very slightly in January.
"Based on current predictions, if any firm offers a fix for under the July price cap (so about 17% cheaper than current rates) that looks a decent deal," he said. "If it's the same or a little more, it may still be worth considering for the sake of price certainty. Of course, current predictions are just predictions, so I can't promise to be right with hindsight.
"A fixed deal under July's Price Cap (£2,074 a year on typical use) looks to be a decent deal, while anything on or just above it could be worth considering if you value price certainty."
There are no open-market fixed deals currently, which means that customers can only fix with their current supplier if there's anything on offer. In recent weeks, some energy suppliers starting to offer fixed deals to existing customers and often to only a limited number of households. British Gas, So Energy, E.on and Ovo have limited fixed deals on offer to their customers and Octopus Energy offers a Tracker tariff and its 'Agile' deal, an electricity-only tariff. These deals change prices regularly.
An Ofgem spokesperson said: “It’s good news that we’re seeing some choice returning to the market – but consumers should always make sure they’re making decisions based on all the information, including what energy prices might do over the lifetime of any deal. Right now, we anticipate the next price cap will be lower, but future price cap levels remain uncertain.
“We know that some customers really value certainty and stability in what they pay for their energy – but everyone should be aware that if prices fall, customers on fixed deals may be locked into higher prices for longer. Customers should make up their own minds based on what matters most for them, and we expect suppliers to help explain the situation when offering these products.”
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The regulator offered the following dos and don'ts of switching now:
Consider exit fees: You may change your mind about your fixed deal and want to switch. If this happens after your 14-day cooling-off period, you might have to pay an exit fee. Not all tariffs have them but some do.
Look at the length of the deal: Most deals are for 12 or 24 months. During this time the price cap could rise or fall depending on market conditions, so consider how long you would like to stay locked in for.
Stay informed: Keep a close eye on the market and run regular comparisons to see what deals are on offer. By signing up to alerts, you will be able to stay close to what’s happening in the energy market and be informed when a good deal comes along.
Don’t go for the first deal you’re offered: Just because a deal is available doesn’t mean it is a good one or the right one for you. As fixed deals return to the market, you may want to use reputable switching websites to assess deals with different suppliers
Switching for renters: Being in rented accommodation does not stop you from switching energy suppliers and taking advantage of a fixed deal if it is right for you.
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