As a result of various factors, wholesale energy prices rocketed in September 2021 but have lowered significantly in the past few months.
The level of the energy price cap is £1,834 until 31 December 2023, though it will increase to £1,928 from January to April. Both of these levels are lower than the level of the government's Energy Price Guarantee, which is £3,000 per year for a medium use average-sized household paying by Direct Debit. With wholesale prices dropping, fixed deals are now beginning to return to the market in limited quantities.
Those who become eligible for one of these fixed deals may now be wondering if it's worth locking in a fix if you want to be sure about the amount you could pay.
A lot of the confusion around average figures and capped unit rates stems from the fact that the energy price cap and the Energy Price Guarantee are two systems that have the same purpose - capping unit rates and standing charges for standard variable tariffs - but run simultaneously together.
The important thing for customers to know is: whichever one has the lower level is the one that suppliers will use to set their prices. The government sets the level of the Energy Price Guarantee in response to the price cap level and Ofgem sets the level of the price cap in response to wholesale energy prices.
So while the Energy Price Guarantee is set at £3,000, the level of the price cap is set at £1,834. The prices of fixed deals at this point are likely to be around the price cap level.
The complication is that wholesale energy prices could still go up or down and, with the price cap now being recalculated every three months, there is the possibility that a fixed deal which starts as the cheapest option could become a more expensive option as time wears on.
Customers will have to consider their finances and how important price certainty is to them before signing up to a fixed deal. The right decision for someone else might not be the right decision for you, so make sure you consider all your options carefully.
You can compare energy prices and deals that are currently available by entering your postcode below.