Cheaper fixed energy deals on the cards as bills set to fall to £2,000
Billpayers could now fork out just over £2,060 a year under the energy price cap mechanism, down £38 from an earlier prediction in March by analysts Cornwall Insight.
It said the stabilisation of the forecasts reflects the decreased volatility in the wholesale energy market, following the relatively mild winter, higher than predicted European storage levels together with reduced demand.
If this trend for less volatility continues, Cornwall Insight suggested that energy suppliers could be tempted to introduce fixed rate tariffs “aligned with or close to the price cap, as they become less apprehensive about the possibility of a sudden surge in energy prices”.
As the energy crisis escalated off the back of the Russia Ukraine war, providers removed fixed energy tariffs. Meanwhile, the Energy Price Guarantee replaced the Ofgem energy price cap. It was initially set at £2,500 before rising to £3,000 from 1 April. Currently, the energy price cap sits at £3,280 for typical dual fuel households paying by direct debit between 1 April and 30 June.
Cornwall Insight added that its predictions for Q4 2023 and Q1 2024 and beyond show that the energy price cap is also expected to stay relatively steady “all things remaining equal”.
‘Fixing energy tariffs is a gamble’
However, the consultancy warned that while the introduction of fixed energy tariffs may be seen as a good development, “there is always a risk in fixing energy tariffs as bills may reduce further leaving customers locked in at higher-than-market rates for a fixed duration”.
Further, energy prices are still £1,000 more than households were paying before the pandemic.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “We are faced with several uncertainties as we look beyond the July price cap, with ongoing consultations on the cap modelling and other legislative changes that could potentially bring significant changes. This leaves our predictions for the end of this year and beyond potentially vulnerable to change.
“What we do know is while energy bills may begin to stabilise, they are still far from returning to pre-2020 levels. While consumers may feel more secure, we must not underestimate the fact that these bills remain unaffordable for many households. The global energy market and our heavy dependence on energy imports still impact bills. Moreover, unforeseen geopolitical events can easily disrupt the wholesale market again.”
Lowrey added that it’s crucial that the UK accelerates its journey towards energy self-sufficiency.
“Only by reducing our reliance on imported energy can we gain the confidence that bills will remain stable in the long-term,” he said.
To fix or not to fix?
Richard Neudegg, director of regulation at Uswitch, said one benefit of a fixed deal is that it gives households more certainty about what they will be paying for the duration of their deal, whether that is over 12 or 24 months.
“If wholesale prices rise again later this year, a fixed deal could end up being better value especially if priced lower than the cap. However, the opposite could be true if wholesale prices fall further and the cap is lowered again during the fixed term.
“This means that no-one can be completely sure whether sticking with a standard variable tariff or opting for a fixed deal will be cheaper in the long run, and either option should be carefully considered,” he said.
Neudegg added that with the possibility of fixed deals on the horizon, it is more important than ever to keep an eye on what is happening in the energy market.