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Monday, March 20, 2023

Fixed-rate energy bills could be returning – but opting for one would leave many worse off

Energy customers could soon be able to opt for a fixed-rate energy tariff again, according to experts at comparison firm Uswitch.

Many are crying out for lower-cost tariffs, as the average home is stuck paying £2,500 a year for gas and electricity on expensive variable rates.

But the return of fixed tariffs does not mean that customers will be able to get the cheap deals they were used to before energy bills started spiralling. 

Based on current price predictions, Uswitch has predicted that fixing would only save the average home £17.30 at best this year – and could even end up costing them £387.58.

No real change? If fixed-rate energy bill prices match current predictions then consumers will not be much better off than they are now, and could be stuck spending even more

Cheap fixed-rate gas and electricity deals were once the main choice for most households, but energy firms stopped selling new deals as energy prices began to soar in 2021.  

Uswitch said suppliers could now relaunch fixed-rate deals because the cost of wholesale energy has fallen by 60 per cent since December 1, 2022.

However, it has estimated that any fixed-rate energy deals launched soon are likely to cost around £2,200 to £2,500 a year.

That price level means consumers are taking a punt on what energy prices do next. Britons may find they save a tiny amount of money, then are locked in to a deal costing them hundreds of pounds more. 

Uswitch director of regulation Richard Neudegg said: ‘We see no good reason why suppliers can’t begin to act on lower wholesale prices and offer fixed deal options to energy customers as soon as possible.’

The comparison firm said 70 per cent of households want a cheaper fixed-rate energy deal, while 33 per cent also value the appeal of set prices. 

The Uswitch predictions are backed by analysts at energy experts Cornwall Insight, which also thinks fixed-rate energy deals are due a comeback

Will a fixed rate energy deal actually save you money?  

This is what fixed-rate energy deals at £2,200 to £2,500 a year would mean for average household bills: 

Currently, variable-rate energy bills should be £4,279 a year for average use – the level of the Ofgem price cap.

There are now 27 million homes on variable-rate energy deals and just 4million on fixed-rate options, Ofgem said.

In reality, that £4,279 figure is capped at £2,500 a year for most homes due to the Government’s Energy Price Guarantee.

That Energy Price Guarantee was set to rise to £3,000 a year from April 1, but reports now suggest the Government will keep it at £2,500 for the foreseeable future – an announcement that could be made in this week’s Budget. The scheme is due to end in April 2024.

Alongside this is is the big question of what happens to the Ofgem price cap in the rest of the year.

The price cap will fall to £3,280 a year from April 1. Energy experts at Cornwall Insight think the price cap will then fall to £2,112.42 a year for the July to September 2023 period, then rise slightly to £2,118.13 for the remaining three months of 2023.

These are just predictions, and no firm is making estimates of energy bill prices past the end of 2023.

But if Uswitch and Cornwall Insight are right then customers would not save money with any fixed-rate deals after April 1. 

Fixing at £2,200 a year, right now, means a consumer would save money between now and April 1. 

 With current price cap predictions for July at £2,153, households will need to think carefully before committing to a fixed deal in the coming months

Richard Neudegg, Uswitch 

That is because energy bills are an average of £2,500 a year, so a consumer would lock in around three weeks of energy use at lower prices – saving around £5.76 a week, or £17.30 in total.

That consumer would then lose the equivalent of £87.58 a year from July to September, with losses falling to £81.87 for the final quarter of 2023.

But if fixed-rate deals are £2,500 a year instead then consumers will lose even more money – again, if current predictions are right.

Someone locking in at this level will not save or lose any money before April 1, because their fixed-rate deal is the same level as the Energy Price Guarantee.

But this consumer would then lose the equivalent of £387.58 a year from July to September, then £381.87 for the final three months of the year.

With this in mind, choosing a fixed-rate deal in the near future is likely to be less about saving money and more about peace of mind that bills cannot rise past a certain point. 

Neudegg added: ‘With current price cap predictions for July at £2,153, households will need to think carefully before committing to a fixed deal in the coming months.

‘Some may want to lock in the certainty of a lower price sooner, ahead of next winter, and others may wait to see what happens to the market. 

‘Energy suppliers should ensure that consumers can reap the benefits of a lower wholesale market by bringing back fixed deals now.’

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