Ovo has become the first major energy supplier to offer a fixed tariff deal below the UK Government’s £2,500 cap. The energy giant is offering a one-year fixed tariff of £2,275 to existing customers - undercutting the UK Government’s £2,500 Energy Price Guarantee.
However, Martin Lewis, who was instrumental in persuading the UK Government not to increase the Energy Price Guarantee to £3,000, is urging people to be “very careful not to just jump on a fix because it costs less than they're paying right now”. That’s because wholesale rates have dropped and industry experts predict that the Price Cap will also drop.
The Energy Price Guarantee reduces, compared to the undiscounted price of energy, the amount people can be charged per unit of gas or electricity, to an annual equivalent of around £2,500 for a typical household. Chancellor Jeremy Hunt committed to keeping the Energy Price Guarantee at £2,500 from April to June, after it had been due to rise to £3,000 from April 1.
Ovo, which has around four million customers, reportedly said it launched its new tariff because customers desired “the security of a long-term fix to protect them against the continuing energy price uncertainty”.
But in a statement shortly after the fix announcement, the founder of MoneySavingExpert.com, said: “People need to be very careful not to just jump on a fix because it costs less than they're paying right now. If you're on a standard tariff, the rates you pay are governed by a cap. That cap is currently set by the Energy Price Guarantee, and will stay roughly stable until the end of June.
"After that, because wholesale rates - the rates energy firms pay - have dropped, it's likely the Price Cap will drop, and on current predictions that means you'll start paying 20 per cent lower rates than now.
“That price is predicted to stay around that point until the end of the year, and into early 2024, though it changes every three months and the further ahead you get, the hazier the crystal ball gets.”
The consumer champion advised people thinking about switching to a fix to look for one “15 per cent cheaper than your current standard tariff “.
He explained: “Based on those predictions, unless a fix is more than 15 per cent cheaper than your current standard tariff - and this one isn't - it's unlikely to be cheaper over the year.
“Having said that, these are just predictions, things can change rapidly, and the one advantage of a fix is you get price certainty, so if you really value that, you may decide to fix even at a higher rate.”
He added: "As an aside, it's worth knowing the Government has a limit in place on how much the cap can rise to in the worst-case scenario (a cap on the cap, if you like). So if wholesale rates were to explode again - which isn't currently seen as likely - the maximum the rate could rise until April 2024 is 20% more than the current price."
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