Households are set to pay more on their energy bills under the energy regulator’s new plans.
Ofgem is proposing to charge customers on direct debits an extra £16 a year, to be paid between April 2024 and March 2025, in a bid to cover debt from customers who have struggled to pay their bills.
Higher bills will be concerning for many households who are already finding it difficult to meet their monthly payments. Fixing an energy deal can be a good way to ensure prices don’t change but some may not be inclined to lock in a long term plan. We look at the options available – and whether fixing now is the best idea.
What is Ofgem’s new proposal?
Ofgem, the UK’s energy watchdog, has announced plans for a one-off price cap adjustment of £16, equivalent to around £1.33 a month, to be paid between April 2024 and March 2025.
This payment is to help tide over suppliers struggling as they carry £3bn in debt from households who have been unable to pay their bills.
The price cap, which limits how much households pay for their energy usage, is currently £1,834 but will increase to £1,928 in January.
Should you fix your energy deal?
More fixed deals have come to the market in the last several months, giving customers greater choice when it comes to their bills.
Although not many, there are several below January’s price cap level of £1,928.
If households decide to fix and prices come down, they will be left paying more until their fixed deal ends. However, if prices continue to stay high, those on fixed deals have the guarantee they will not be charged more.
Currently, the best deal is with Ovo Energy on its one-year fixed deal, costing an average of £1,757 – this will be £171 below the new price cap in January.
However, customers must also take out boiler cover when joining, which will cost an additional £15 to £32 a month, leaving people still with at least £140 in the bank even with the cover.
British Gas has the next cheapest deal, costing £1,805, which works out just shy of £120 cheaper, although this is for home movers only.
The best deal for customers, without a caveat, is with EDF on its Essentials one-year fixed deal, costing an average of £1,849 a year. This is 4 per cent below the price cap.
Eon Next is also offering an 18-month fixed deal, costing £1,880 – 2.5 per cent below the price cap – that is available to both new and existing customers.
Anyone looking to change deals before their deal has ended should be aware of the often hefty exit fees that are attached.
Natalie Mathie, energy expert at Uswitch, said: “The number of fixed deals is still limited compared to pre-energy crisis levels, but there are around 20 tariffs available. Most are only open to existing customers, but there are some available to new customers, which means households do have some choice about their energy tariff.
“For households who would like more price certainty over the winter months, it’s worth checking out the fixed options on a comparison site.
“The energy market remains volatile, so it can be hard to predict whether opting for a fixed deal or sticking with a standard variable tariff will be cheaper in the long run.”
Do experts think it is a good idea?
Some experts have said Ofgem’s plans are a good idea while others believe it will be a detriment to household finances.
Tony Jordan of energy consultants Auxilione said: “This is all part of Ofgem’s plan to level out the price cap so that direct debit and prepayment customers pay the same amount for their energy.
“Whilst prepayment customers are typically on these plans to help them manage household budgets and avoid getting into debt, there are plenty of direct debit customers that now have similar issues in managing debt levels.
“Therefore it is a fair way to ensure the market as a whole is kept stable, irrespective of how a customer pays for their energy.”
However, others have called for a total ban on the price cap.
Richard Neudegg, director of regulation at Uswitch, said: “It is always frustrating when consumers face having more costs added to their already high bills.
“If suppliers can’t cover bad debts in their revenues, it can lead them to more aggressively chase those in vulnerable situations.
“The price cap is not fit for purpose, and market reforms are needed to introduce competition back into the market and help consumers access cheaper deals again.”