Ofgem issues 'think before you fix' warning ahead of price cap announcement
Ofgem has warned households “think before you fix” into an energy deal in case prices fall in the future.
Fixed rate energy tariffs have started entering the market again, leaving many people wondering if they should lock into a deal. When you sign up to a fixed deal, the rate you pay for energy won't change for the length of your contract.
This means you are protected from any price rises should the Ofgem price cap increase, but if rates drop, you won’t see your bills fall. If you’re not on a fixed deal, then you will likely be on a standard variable rate, which is dictated by the Ofgem price cap.
In a recent tweet, Ofgem warned households to "think" before they fix. It said: "Fixed-rate energy tariffs have seen a return to the market but check if they are right for you. Prices are still unpredictable and signing up for a fixed rate now might mean you miss out if prices fall in the future."
The Ofgem price cap has just fallen to £2,074 a year for dual-fuel households with typical energy use, paying by direct debit. Analysts at Cornwall Insight currently expect the price cap to then fall to £1,860 from October, before rising to around £1,960 in January.
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Ofgem will confirm its next price cap on August 25 and this will cover the period from October 1 to December 31. MoneySavingExpert.com founder Martin Lewis has said his current “rule of thumb” is any fixed rate that is less than the current price cap could be “a decent deal”.
If it costs the same or a little more, it “may still be worth considering” if you value price certainty, he said. But he added: “Of course, current predictions are just predictions, so I can't promise to be right with hindsight.”
If you do want to fix into a deal, make sure you always check what exit fees you’d have to pay, in case you want to leave further down the line. If you're on the price cap, it's important to remember there isn’t a total limit on how much you can pay for energy.
The headline figure used when talking about the price cap just illustrates what someone with typical usage is likely to pay over a year. The price cap - which is based on wholesale prices during an assessment period - actually sets the unit rates you’re charged for gas and electricity, as well as the standing charges.
This means you can end up paying more or less for energy compared to the price cap figure, depending on how much energy you use and how you pay your bill. If you pay by direct debit, the average unit rate for gas is 7.51p per kilowatt hour (kWh) and 30.11p per kWh for electricity.
The standing charge - a fixed daily amount you have to pay for energy, no matter how much you use - for both gas and electricity remains at 29.11p per day. If you’re a prepayment customer or you pay on receipt of bill, your unit rates and standing charges are slightly different.
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