Fixed-rate energy deals, which were once the go-to option for many, are now scarce and often not the most cost-effective choice. Presently, the average UK household faces annual energy bills of around £1,928, typically associated with variable-rate deals under the Ofgem price cap. The challenge is to find a fixed-rate deal that beats this price.
Scarcity and High Costs
Data from Ofgem and Cornwall Insight reveals that fixed-rate tariffs are not only limited in number but also pricey. As of now, only 32 such deals are available, marginally up from the end of 2023. Unfortunately, most of these are more expensive than variable-rate options.
There’s some good news, though. The cheapest fixed-rate tariff without any additional requirements is offered by Home Energy at £1,804 per year, saving you £104 annually compared to a price-capped deal. Even cheaper is Ovo’s £1,757 per year deal, but it comes with the caveat of mandatory boiler cover.
How to Determine If a Fixed Deal Is Right for You
To figure out if a fixed or any other energy deal is a better fit financially, compare the unit rate and standing charge against what you’re currently paying. Remember, the average household is subject to the Ofgem price cap rates. However, keep in mind that future changes in the price cap could impact your savings.
When Will Cheaper Energy Deals Return?
The short answer is, not very soon. Industry experts predict a slow increase in fixed tariffs in the coming months. The Market Stabilisation Charge (MSC) and the ban on acquisition-only tariffs (BAT) are two regulatory measures limiting the launch of competitive fixed rates. Both policies aim to stabilise the market and prevent undercutting but also restrain the availability of cheaper deals.
Looking Ahead
The MSC is set to expire on March 31, 2024, which may bring some changes. Additionally, the energy price cap is expected to drop in April, which could lead to more competitive pricing in fixed deals. However, Ofgem’s stance on the BAT’s future remains uncertain.
Why the Shortage of Fixed-Rate Deals?
The root of the problem traces back to late 2021, when wholesale energy prices surged. Many energy firms, caught in a tough spot with fixed-rate contracts, faced financial strain. This crisis led to the collapse of numerous energy providers and a subsequent hike in the price of fixed-rate deals. Although these deals have started to reappear since mid-2023, they remain limited and costly.