Households struggling with £2,500-a-year energy bills may finally be able to save money this year, as energy firms are set to bring back fixed-rate deals.
But there is little good news for cash-strapped customers just yet, as none of the fixed-rate gas and electricity deals on the market will save them much money.
The average home will pay around £2,000 a year for energy until at least next March, experts think, and no energy deal – fixed or variable – is currently much cheaper than this.
Historically the cheapest and most popular energy deals were fixed-rate tariffs. Variable-rate deals were normally reserved for households that had reached the end of their cheap fixed tariff and not switched to a new one.
Big bills: Energy prices are likely to hover at around £2,000 a year until next March
But energy firms pulled all new low-cost fixed deals when energy prices started rising in October 2021, leaving increasing numbers of consumers with no choice but to go on to expensive variable rates.
These are regulated by the Ofgem price cap, which will fall to £2,074 in July for a household with average usage.
What fixed rates are available now?
At the moment there is only one fixed energy tariff for new customers, from So Energy.
This is priced at £2,047 a year for average energy use, and is available through price comparison website Uswitch.
Three other energy firms, British Gas, Ovo and E.On, have fixed-rate tariffs for existing customers. However, none of these deals will save consumers much money – if any at all.
For average energy use, one British Gas customer was quoted £2,106.40 for a fixed-rate electricity and gas tariff per year, and another £2,001.19.
An E.On customer taking out a fixed tariff would pay around £2,138.59 for typical energy use.
Most homes currently pay around £2,500 a year for average electricity and gas use, falling to £2,074 a year from July.
It means that, for the moment, staying put and waiting for a significantly cheaper fixed-rate energy deal later this year is probably the wisest move.
Other major energy firms EDF, Octopus, Scottish Power and SSE would not confirm any plans to relaunch fixed-rate tariffs for either new or existing customers.
Is a fixed-rate energy deal best for me?
To explain if a fixed-rate tariff is the right deal for you, it is important to first lay out how energy bills are worked out.
There are only two sorts of energy bill: variable and fixed. As the names suggest, variable-rate energy bills change over time, whereas fixed rates are locked for a set time period – normally a year, 18 months or two years.
Around 80 per cent of British homes now have variable bills, with the rest on fixed rates.
Return of the fix: Ovo is one of only two energy firms to have unveiled a fixed rate this year
Variable-rate customers are at the mercy of bills dictated by the price cap of regulator Ofgem, which changes four times a year.
This price cap sets the maximum level a variable rate bill can be. Specifically, it caps average unit rates for gas and electricity – the rate energy firms charge you for each kilowatt hour of power you use. So the more energy you use, the more you pay.
Last month Ofgem announced that its price cap would fall to £2,074 a year for the average home from July to September, down from £3,280 currently.
However, the typical home does not currently pay the full £3,280 due to a Government support scheme called the Energy Price Guarantee.
This sees the state pick up some of the tab for consumer gas and electricity bills, so the average home pays £2,500 a year now and will save £426 when the price cap drops in July.
The Energy Price Guarantee was introduced in October 2022. From July it will rise to £3,000 a year, and ends in April 2024.
When will more fixed deals arrive?
Experts think that the falling Ofgem price cap will give energy firms certainty that they can relaunch competitive fixed-rate tariffs without being caught out by abrupt hikes in power prices.
A spokesman for the Energy Saving Trust charity said: ‘While there continues to be uncertainty around the energy market, Ofgem’s latest price cap announcement is now expected to encourage some energy suppliers to begin tentatively offering a few tariffs which are more competitive than the default, price cap-protected tariffs.’
Natalie Mathie, energy expert at comparison site Uswitch, added: ‘This is a watershed moment for energy suppliers who can now look to start offering fixed deals again, given the market conditions – and would help to encourage genuine competition in the retail energy market.
‘We see no reason why energy suppliers cannot offer competitive fixed deals around the £2,000 level.’
However, analysts at Cornwall Insight predict the typical price-capped energy bill will remain at around £2,000 until next March.
There is a possibility that the cap could decrease, leading to consumers locked into higher-than-market prices
That means it is crucial to pick a fixed rate carefully to avoid paying more than you would on a price-capped deal.
Craig Lowrey, principal consultant at analysts Cornwall Insight, said: ‘Those seeking alternative options to bypass the high cap prices through the return of fixed tariffs will need to manage their expectations, as the availability of deals below the cap is still uncertain.
‘Even for those able to secure a below-cap rate, it remains a risky decision. There is a possibility that the cap could decrease, leading to consumers locked into higher-than-market prices.’
There are two main reasons to consider a fixed-rate energy deal over a variable rate: saving money and certainty over future bills.
If you spot a fixed rate that is less than you are paying now, and less than you will be paying from July, it may make sense to lock in.
The average price-capped energy bill will drop by 17 per cent from July, so that is the price to beat with any fixed rate.
Take your current annual energy bill and knock 17 per cent off the price. If you can find a fixed-rate deal cheaper than that, it is worth considering.
However, there is no certainty around what energy prices will do past September, meaning there is a risk of overpaying with any fixed rate unless it is incredibly cheap.
If you are offered a fixed-rate energy deal that costs more than you are paying now, it would of course make no financial sense to take it out.
But some may value the security and ability to budget of knowing their monthly payments are set for the period of the fixed deal, and might be happy to pay slightly more in return.
