OVO Energy offers new fixed tariff deal cheaper than price cap – how do they work? | Personal Finance | Finance

OVO Energy is launching a 12-month fixed tariff deal to provide customers a “long term fixed” to protect them from fluctuations in the price of energy. The package is on offer to existing customers with £2,275 for a typical household’s dual-fuel use for the 12-month period, which is below the current energy price guarantee.

The guarantee caps the unit price of energy with annual bills for a typical household in England, Scotland and Wales at £2,500 a year, with the OVO Energy tariff £225 a year cheaper than this.

Chancellor Jeremy Hunt announced in the Spring Budget the energy price guarantee would stay at its current level until the end of June, when the level set by the guarantee.

OVO Energy said it launched the fixed tariff deal to provide customers “the security of a long term fix to protect them against the continuing energy price uncertainty”.

How do fixed energy tariffs work?

Fixed tariffs for gas and electricity guarantee the cost of energy charged to a customer will not change for a fixed period of time.


However, this does not mean a will stay the same from one month to the next as it’s only the unit rate that is frozen, so if a person uses more energy their bill will increase.

Fixed price energy deals may be suitable for a person who wants to carefully plan ahead their finances as they can know exactly how much they will spend on their energy, as long as they know their typical or projected usage for a given week or month.

But fixed tariff rates may be more expensive than the cheapest energy tariffs available on the market.

Also, if the wholesale price of energy is decreasing, as they have done in recent weeks, energy suppliers may offer better rates, so a person may be better off to wait for these deals to come on the market.

He said: “If you’re on a standard tariff, the rates you pay are governed by a cap. That cap is currently set by the energy price guarantee, and will stay roughly stable until the end of June.

“After that, because wholesale rates – the rates energy firms pay – have dropped, it’s likely the price cap will drop, and on current predictions that means you’ll start paying 20 percent lower rates than now.

“That price is predicted to stay around that point until the end of the year, and into early 2024, though it changes every three months and the further ahead you get, the hazier the crystal ball gets.

“So based on those predictions, unless a fix is more than 15 percent cheaper than your current standard tariff – and this one isn’t – it’s unlikely to be cheaper over the year.”

However, the consumer expert also said his thoughts were just “predictions” and the situation could change again.

He added: “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.

“As an aside, it’s worth knowing 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 percent more than the current price.”

Energy bills are increasing next month as the £400 energy bills discount that has gone out to all households in England, Scotland and Wales with a direct domestic energy supply, comes to an end.

The final £67 monthly instalment from the discount scheme was sent out to households this month.

Martin Lewis is the founder and chair of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip.

For the latest personal finance news, follow us on Twitter at @ExpressMoney_.

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