The only fixed-rate energy tariff that’s cheaper than the Energy Price Guarantee is now available to certain customers, but does that mean you should switch your energy supplier?
OVO Energy has broken with current industry trends to release a fixed-rate energy tariff. We’ve broken down what this means below, as well as our advice on whether you should switch energy suppliers to OVO or wait for more tariffs to be released.
What is a fixed-rate energy tariff?
A fixed-rate energy tariff is one where the unit rate that you pay for gas and electricity is fixed for the length of your contract, usually 12 or 24 months. The alternative is a variable rate tariff, where energy unit prices can go up or down but cannot exceed the Energy Price Cap (EPC) or the Energy Price Guarantee (EPG).
Fixed-rate energy tariffs can exceed this price cap and, over the last year, there have been no fixed-rate tariffs available that are cheaper than the EPC or EPG.
During this period industry experts, ourselves included, recommended that no one switch energy suppliers. This was because companies were only offering new customers tariffs that were more expensive than the variable tariffs they were on by default.
This has recently changed, with OVO offering the first fixed rate tariff that is – slightly – cheaper than the EPG. Meanwhile, other energy suppliers are now allowing customers to switch to them while remaining on the standard variable tariff protected by the price cap.
What are the details of OVO’s new tariff?
OVO’s ‘1 Year Fixed 23 March 2023’ tariff is an average of 9% cheaper than the current energy price cap. For the ‘average household’ of 3-4 occupants with typical use, that means an annual energy bill of £2,275 a year vs the £2,500 a year price guarantee.
The tariff has a minimum commitment of one year, and there’s a £75 per-fuel exit fee for terminating early. That means that if you use the tariff for electricity and gas you’ll have to pay £150 to exit before 12 months.
It’s only available to existing OVO customers through their online accounts and those who registered for MoneySuperMarkets energy alerts.
Should I switch my energy supplier to OVO?
While it might be tempting to jump on the first available tariff, current market projections show you’ll save more by waiting.
Market analysts Cornwall Insight predicted that the price cap on energy bills will fall to £2,153 a year from July last month. More recently, financial firm Investec projected it could fall as low as £1,981 a year from July.
Switching to a fixed rate tariff now would mean you are not covered by the price cap going forward. If you wanted to switch to a different, cheaper tariff later on you’d have to pay your tariff’s exit fee.
Money Saving Expert’s Martin Lewis summarised the situation in his article,
“Based on [Cornwall Insight and Investec’s] predictions, unless a fix is more than 15% 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.
… 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.”
Is there another reason to switch energy suppliers?
If you want to be covered by the price cap but still want to change suppliers you now have a few options. A number of suppliers have begun welcoming new customers to join them on the standard variable tariff covered by the EPG, including Octopus Energy and small supplier Rebel Energy.
As the price you will be paying will remain the same if you opt for a variable tariff, it’s worth switching if you’re unhappy with your current provider.
This could be because you’ve moved home and want to get set up quickly, because your current provider has poor customer service or because you want to switch to a more environmentally friendly option.
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