It has been widly reported that the energy regulator Ofgem’s price cap is set to rise by 10 per cent on 1 October, reaching £1,717 for the average household. This significant increase means that, for the first time since 2021, it could be advantageous to switch to a fixed energy deal. The price cap, reviewed every three months and likely to increase again in January, is not a limit on your total bill. Instead, it represents the maximum amount suppliers can charge customers per unit of gas and electricity on their standard variable tariffs.
Until 30 September, the cap is set at 5.48p per kWh for gas and 22.36p per kWh for electricity, equating to an annual cost of £1,568 for the average dual-fuel household paying by direct debit. From October, electricity will cost 24.5p per kWh, and gas will cost 6.24p per kWh. According to the consultancy Cornwall Insight, the rise in wholesale energy prices is responsible for this increase in the price cap.
Before the energy crisis of 2021, caused by a European gas shortage and Russia’s invasion of Ukraine, customers frequently switched suppliers and opted for fixed deals. However, during the crisis, 28 energy suppliers went bust as wholesale prices soared faster than the price cap, which was reviewed twice a year. As the cap caught up, reaching £3,449 a year in October 2022, the government intervened with a price guarantee that limited average bills to £2,500 a year between October 2022 and July 2023.
Since then, bills have fallen, and the advice has been to remain on a variable rate, as it has proven cheaper than fixed deals. Ben Gallizzi from the comparison site Uswitch advises, “Now is a good time to look at what deals are available. The cheapest fix is £149 less than the expected price cap level from October, and it could save you more money from January 2025, as further price rises are expected.”
Uswitch reports that there are ten fixed energy deals currently costing less than October’s price cap of £1,717 a year. The cheapest deal is the Fix’d Dual Aug24 v3.0 one-year tariff from Outfox the Market, priced at £1,568 a year, with a £25 per fuel exit fee.
When considering a fixed deal, it’s essential to keep in mind that some may result in higher payments between now and 1 October. Additionally, you would be taking a chance on the price cap remaining higher for the remaining eight months of the deal, as the cap often falls in April and July when energy demand is lower.
While substantial savings on fixed tariffs are unlikely due to Ofgem’s ban on better deals for new customers, which will remain in place until at least March 2025, it is still worth exploring your options. As Gallizzi suggests, “Before signing up to a new fixed tariff, check you are happy with the price, duration, and the exit fees, as it has to be the right deal for you.”
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