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

Energy customers will soon be able to opt for a fixed energy rate again, say experts from comparison agency Uswitch.

Many are clamoring for lower rates as the average home is stuck paying £2,500 a year for gas and electricity at expensive variable rates.

But the return of flat rates doesn’t mean customers can get the cheap deals they used to before energy bills started to rise.

Based on current price forecasts, Uswitch has predicted that repairs this year would save the average home just £17.30 – and could end up costing as much as £387.58.

Cheap, fixed-rate gas and electricity deals were once the top choice for most households, but energy companies stopped selling new deals when energy prices started to rise in 2021.

Uswitch said suppliers can now relaunch flat-rate deals as wholesale energy costs have fallen by 60 percent since Dec. 1, 2022.

However, it has estimated that flat rate energy deals launching soon are likely to cost around £2,200 to £2,500 a year.

That price level means that consumers are taking a gamble on what energy prices will do next. Brits may find themselves saving a tiny bit of money and then be stuck with a deal that costs them hundreds of pounds more.

Richard Neudegg, president of Uswitch, said: ‘We see no good reason why suppliers cannot start with lower wholesale prices and offer firm deal options to energy customers as quickly as possible.’

The comparison agency said 70 percent of households want a cheaper energy contract with a fixed rate, while 33 percent also value the attractiveness of fixed prices.

The Uswitch forecasts are supported by analysts from energy experts Cornwall Insight, who also think fixed rate energy deals will make a comeback.

Will a fixed rate energy deal actually save you money?

Here’s what flat rate energy deals of £2,200 to £2,500 a year would mean for average household bills:

Currently, variable rate utility bills should be £4,279 per annum for average use – the level of the Ofgem price limit.

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

In reality, that figure of £4,279 is capped at £2,500 a year for most homes due to the government’s energy price guarantee.

That energy price guarantee was due to be increased 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 expires in April 2024.

In addition, the big question is what happens to the Ofgem price cap for the rest of the year.

The price cap will drop to £3,280 per year from April 1. Energy experts from Cornwall Insight believe the price cap will then drop to £2,112.42 per annum 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 company makes estimates of utility bill prices beyond the end of 2023.

But if Uswitch and Cornwall Insight are right, customers wouldn’t save money with fixed-rate deals after April 1.

Setting £2,200 a year, at the moment, means a consumer would be saving money between now and April 1.

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

That consumer would then lose the equivalent of £87.58 per year from July to September, with losses up to £81.87 for the last quarter of 2023.

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

Someone who enters at this level will not save or lose money before April 1, because his fixed interest rate is equal to the level of 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 last three months of the year.

With this in mind, choosing a fixed-rate deal for the foreseeable future will likely be less about saving money and more about peace of mind that bills can’t go past a certain point.

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

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

“Energy suppliers must ensure that consumers can reap the benefits of a lower wholesale market by bringing back fixed deals now.”