When will cheaper fixed energy tariffs return… and should you take one?

Households struggling with energy bills of £2,500 a year may finally be able to save money this year as energy companies are determined to bring back flat rate deals.

But there’s still little good news for cash-strapped customers, 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 in energy until at least March next year, experts think, and no energy deal – fixed or variable – is currently much cheaper than this.

Historically, the cheapest and most popular energy deals have been flat rates. Variable rates were normally reserved for households that had reached the end of their cheap fixed rate and had not switched to a new rate.

But energy companies withdrew all new cheap fixed deals when energy prices started to rise in October 2021, leaving more and more consumers with no choice but to switch to expensive variable rates.

These are regulated by the Ofgem price cap, which will drop to £2,074 in July for a medium-use household.

What fixed rates are currently available?

At the moment there is only one fixed energy rate for new customers, from So Energy.

This costs £2,047 per year for average energy usage and is available through the price comparison website Uswitch.

Three other energy companies, British Gas, Ovo and E.On, have fixed rates for existing customers. However, none of these deals will save consumers much money – if at all.

For average energy consumption, a British Gas customer received £2,106.40 for a fixed electricity and gas tariff per year, plus a further £2,001.19.

An E.On customer who takes out a flat rate pays approximately £2,138.59 for typical energy usage.

Most homes currently pay around £2,500 a year for average electricity and gas usage, dropping to £2,074 a year from July.

It means that staying put for now and waiting for a significantly cheaper, flat-rate energy deal later this year is probably the wisest move.

Other major energy companies EDF, Octopus, Scottish Power and SSE would not confirm plans to relaunch flat rates for new or existing customers.

Is a fixed rate energy deal best for me?

To explain whether a fixed rate is the right deal for you, it is important to first map out how the energy bill is calculated.

There are only two types of utility bills: variable and fixed. As the names suggest, variable rate utility bills change over time, while fixed rates are held for a period of time – normally a year, 18 months or two years.

About 80 per cent of UK homes now have variable bills, the rest with fixed rates.

Floating rate clients are at the mercy of bills imposed by regulator Ofgem’s price cap, which changes four times a year.

This price limit determines the maximum level that a floating rate account can have. Specifically, it limits average unit rates for gas and electricity — the rate power companies 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 the July to September price cap would drop to £2,074 a year for the average home, down from £3,280 currently.

However, the typical house is currently not paying the full £3,280 due to a government support scheme called the Energy Price Guarantee.

This gives the state some of the bill for consumers’ gas and electricity bills, so the average home now pays £2,500 a year and will save £426 when the price cap drops in July.

The Energy Price Guarantee was introduced in October 2022. From July this will go up to £3,000 a year and will expire in April 2024.

When will there be more fixed deals?

Experts believe Ofgem’s falling price cap will give energy companies the assurance that they can relaunch competitive fixed-rate tariffs without being caught off guard by abrupt increases in energy prices.

A spokesperson for the charity Energy Saving Trust said: ‘While uncertainty remains in the energy market, Ofgem’s latest price cap is now expected to encourage some energy suppliers to cautiously offer a few tariffs that are more competitive than standard rates. tariffs protected against price caps.’

Natalie Mathie, energy expert at comparison site Uswitch, added: ‘This is a turning point for energy suppliers who, given market conditions, may now be trying to offer firm deals again – and would help to bring real competition to the retail energy market. encourage.

“We see no reason why energy suppliers cannot offer competitive firm deals around the £2,000 level.”

However, analysts from Cornwall Insight predict that the typical price-capped utility bill will remain around £2,000 until March next year.

That means it’s critical to choose a flat rate carefully to avoid paying more than you would on a price cap deal.

Craig Lowrey, senior advisor at analyst firm Cornwall Insight, said: “Those looking for alternative options to circumvent the high cap prices brought about by the return of fixed rates will need to manage their expectations as the availability of below-cap deals is still limited. is still uncertain.

“Even for those who can get an interest rate below the limit, it remains a risky decision. It is possible that the limit will be lowered, trapping consumers in prices that are higher than the market.’

There are two main reasons to consider a fixed rate energy deal over a variable rate: saving money and security about future bills.

If you see a flat rate that’s less than you’re paying now, and less than you’ll be paying starting in July, it might make sense to lock in.

The average capped-price utility bill is down 17 percent from July, so that’s the price to beat with any flat rate.

Take your current annual utility bill and knock 17 percent off the price. If you can find a fixed rate deal cheaper, it’s worth considering.

However, there’s no certainty about what energy prices will do after September, meaning there’s a risk of overpaying on a flat rate unless it’s incredibly cheap.

If you are offered a fixed rate energy deal that costs more than you pay now, it obviously makes no financial sense to take it out.

But some may appreciate the security and ability to budget knowing their monthly payments are set for the period of the fixed deal, and may be happy to pay a little more.