An anticipated fall in Ofgem’s energy price cap has once again sparked debate over fixing bills and whether the more competitive tariffs leave customers better off in the long run.
Since wholesale prices have subsided in recent months, offers of fixed deals have made their way back onto the market.
As a result, customer switching between suppliers has also re-emerged, with over 200,000 people swapping deals last month, according to Uswitch, marking an 83% yearly increase.
Though fixed tariffs offer consumers a set price for energy over the course of a year and can therefore shield people from price rises, any falls in wholesale prices can also be missed.
“Such an option is a two-sided coin” therefore, Cornwall Insight chief consultant Craig Lowrey warned.
“While many find comfort in locking in energy prices after the turbulent bills of the past couple of years, the potential for the price cap to dip below fixed rates is also worthy of consideration.”
A fixed tariff from British Gas for a four-bedroom home in London offers a rate of 30.86p and 7.47p per kilowatt of electricity and gas respectively for instance, according to Uswitch, compared to Ofgem’s current cap rate of 30p and 8p.
This means that come October, customers on the tariff would be paying more than the 27p and 7p per unit rates that Cornwall Insight analysts expect Ofgem’s new cap will offer.
However, if prices were to rise again considerably this winter, meaning Ofgem lifted unit rates above the fixed tariff rate, people on the deal could indeed pay less for their energy over the course of the year.
“There is always a risk in signing up to a fixed energy deal,” Cornwall Insight’s James Mabey added.
“Bills may reduce further, leaving customers locked in at higher-than-market rates for a fixed duration.”
Suppliers E.on, Octopus and Shell PLC (LSE:SHEL, NYSE:SHEL)’s retail arm are all among firms to currently offer rates below Ofgem’s price cap, which places a maximum on what can be charged per unit.
Given Ofgem is tipped to reduce its cap for the period between October and January this week though, whether the fixed rates remain below the regulator’s remains to be seen.