- Many energy companies have deals that will undermine Ofgem’s price cap from January
The average household energy bill will rise to £1,738 from January, but it could be possible to beat the rise and save more than £140 a year by switching to a fixed rate.
The average home currently pays an energy bill of £1,717 a year, for a deal with prices set by regulator Ofgem’s price cap.
This will rise to £1,738, or 1.2 per cent, from 1 January 2025 for those on variable rate energy contracts regulated by the price cap and using average amounts of gas and electricity.
But households may be able to avoid the limit and save money by taking out a fixed-rate energy contract.
At the moment, most energy deals are variable. That means they change the price, normally four times a year when Ofgem adjusts its price cap.
Fixed rates, as the name suggests, offer fixed prices for unit rates (the energy used) and fixed charges (daily fees paid regardless of the energy used).
Highs and lows: how Ofgem’s energy price cap has changed since 2019
Before the 2021 energy crisis, most energy deals had a fixed rate, with variable rates reserved for homes that had dropped out of a fixed contract and had not entered into a new contract.
But if you can find a flat rate cheaper than the price cap, you can save money on your energy bills.
The top ten cheapest energy deals range from £1,597 per year to £1,636.
The current cheapest fixed rate energy deal is from E.On Next, at £1,597 per year, or £141 less than the January 1 price cap.
| Energy company | Agreement | Term | Price | Savings vs. January Price Limit | Exit costs |
|---|---|---|---|---|---|
| E.To next | Next Fixed 18m v7 | 18 months | £1,597 | £141 | €50 per fuel |
| Outsmart the market | Fix’d Dual Nov24 v2.0 | 12 months | £1,606 | £132 | €25 per fuel |
| EOF | Easy to determine 1 year January 26 | 14 months | £1,608 | £130 | €25 per fuel |
| British gas | Flat rate 18M | 18 months | £1,608 | £130 | €50 per fuel |
| Octopus | Octopus 12M Fixed November 2024 v2 | 12 months | £1,609 | £129 | No |
| Cooperative energy | Co-op 12M Fixed November 2024 v2 | 12 months | £1,609 | £129 | No |
| Outsmart the market | 18 months Fix’d Dual Nov24 v5.0 | 18 months | £1,611 | £127 | €50 per fuel |
| E.To next | Next reward days Fixed 12m v1 | 12 months | £1,620 | £118 | €50 per fuel |
| E.To next | Next Fixed 12m v35 | 12 months | £1,620 | £118 | €50 per fuel |
| Sainsbury’s energy | Sainsbury’s Fix and Reward Fixed 18m v6 | 18 months | £1,636 | £102 | €50 per fuel |
| Source: Uswitch | |||||
Beware of the obligations associated with fixed-rate energy contracts
Saving money by taking out a cheaper fixed rate may seem like a no-brainer, but there are some possible conditions attached.
Firstly, all the above figures are just averages. If you use more energy, you still pay more with a permanent contract. This only determines the costs of each unit of gas and electricity that you use.
Secondly, many fixed rate deals come with expensive exit fees of up to £100 per fuel.
Even in the table above, six out of ten deals have an exit fee of £50 per fuel.
Exit fees can exacerbate the third potential problem with fixed interest rates: the fact that no one can predict the future.
All these solutions currently work out cheaper than a household would pay if the price ceiling were maintained.
But they also expect that energy prices will not fall further in the period of twelve to eighteen months of the fixed term.
If energy prices fall, consumers may be better off switching to a cheaper solution, or perhaps even staying on a variable rate limited by the price cap.
Expensive exit fees could lock consumers into more expensive energy deals as it becomes cheaper to stay than to move.
Energy prices are expected to fall again in April and then July, according to experts at Cornwall Insight, but the company has not yet said by how much.
There may be cheaper solutions available
There may be cheaper flat rate offers than those mentioned above, but they are hidden from view.
Energy companies are free to sell fixes only to their own customers, and do not have to disclose these rates to the rest of the world.
If your energy company contacts you about an exclusive fixed rate, check how this compares in price to what you are paying now and what you would pay in October.