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

According to experts from the comparison company Uswitch, energy customers may soon be able to opt for a fixed energy tariff again.

Many are calling for lower rates as the average household is forced to pay £2,500 a year for gas and electricity at expensive variable rates.

But the return of flat rates doesn’t mean customers will be able to get the cheap deals they were used to before energy bills started to climb.

Based on current price predictions, Uswitch has predicted that the fix will only save the average home £17.30 at best this year – and could even end up costing them £387.58.

No real change? If fixed rate energy bill prices match current forecasts, consumers will not be much better off than they are now and may be forced to spend even more.

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

Uswitch said suppliers could now reinitiate fixed-rate deals as the cost of wholesale energy has fallen 60% since Dec. 1, 2022.

However, he estimated that any fixed rate energy deal launched soon would cost around £2,200-2,500 a year.

This price level means that consumers are looking at what energy prices will do next. The Brits may find they are saving a small amount of money and then locked into a deal that costs them hundreds of pounds more.

Uswitch’s Chief Regulatory Officer, Richard Neudegg, said: “We see no good reason why providers can’t start acting on lower wholesale prices and offer fixed deal options to customers of energy as soon as possible.”

The comparison firm said 70% of households want a cheaper fixed-price energy contract, while 33% also like the appeal of fixed prices.

Uswitch’s forecast is backed by analysts at energy experts Cornwall Insight, who also believe fixed-rate energy deals are set to return.

Will a fixed rate energy contract 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 energy bills are expected to be £4,279 a year for average use – the level of the Ofgem price cap.

There are now 27 million households on variable rate energy contracts and just 4 million on fixed rate options, Ofgem said.

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

This energy price guarantee was due to increase 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 come in the budget from this week. The program is due to end in April 2024.

Along with this there is the big question of what happens to the Ofgem price cap in the rest of the year.

The price cap will drop to £3,280 per year from April 1. Energy experts at Cornwall Insight believe the price cap will then fall to £2,112.42 per year for the period July to September 2023, then rise slightly to £2,118.13 for the remaining three months. of 2023.

These are forecasts only, and no company makes price estimates for energy bills after 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 it at £2,200 a year, right now, means a consumer would be saving money by April 1.

This is because energy bills average £2,500 a year, so a consumer would lock in around three weeks of energy use at lower prices, saving them around £5.76 £ per week, or £17.30 in total.

This consumer would then lose the equivalent of £87.58 a year from July to September, with losses falling to £81.87 for the last quarter of 2023.

But if fixed rate deals rise to £2,500 a year, consumers will lose even more money – again, if current forecasts are correct.

A person stuck at this level will not save or lose money until April 1, because their fixed rate offer is at the same level as the energy price guarantee.

But that 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 that in mind, choosing a fixed rate deal in the near future will likely be less about saving money and more about peace of mind that bills can’t get past a certain point.

Neudegg added: “With the current price cap forecast for July at £2,153, households will need to think carefully before committing to a fixed deal in the months ahead.

“Some may want to be sure of the certainty of a lower price earlier, before next winter, and others will wait to see what happens to the market.”

“Energy providers should ensure that consumers can reap the benefits of a weaker wholesale market by bringing back fixed offers now.”