Ovo Energy has become the first supplier to undercut the government’s energy price guarantee, a move analysts anticipated as wholesale gas prices continue to fall.
Ovo, which became one of the largest UK energy suppliers after buying SSE PLC (LSE:SSE)’s retail wing in 2020, has begun offering fixed rate tariffs for £2,275, potentially offering savings of £225 over the course of a year, since it sits below the government’s subsidised rate of £2,500,
Both do depend on usage though, so could be higher given they control how much households pay per unit of gas and electricity.
However, with July marking an end to government support and a predicted fall in Ofgem’s price cap, which determines how much suppliers can charge, customers on the tariff could find themselves paying more.
Investec analyst Martin Young last week forecasted Ofgem’s price to slip to £1,981 from July and later to £1,966 in October, having been set at £3,280 for the three months from April.
He also predicted suppliers would start launching “innovative tariffs,” offering households “piece of mind” against any further market volatility, after wholesale gas rose 275% from 170p per British thermal unit in early January 2021, to an August high of 640p.
Gas, which determines other prices across the market, has since fallen below pre-Ukraine war levels to 106p, opening the door for suppliers to offer lower, more competitive prices.
MoneySavingExpert founder Martin Lewis commented people should be cautious not to “jump on a fix” though, given prices are still set to fall.
“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,” he explained, acknowledging the certainty may still draw people in.
Young also pointed out that bills above £2,000 were far higher than households are used to paying, effectively calling for Ofgem’s cap to be lowered even further in future.
Energy security minister Grant Shapps said over the weekend that the government will lay out plans to decouple gas and electricity prices this week meanwhile, furthering the prospect of lower prices.