Ovo offers cheaper energy deal – but customers should beware

Fixed prices can have benefits, but households could be stuck paying more than Ofgem’s energy cap

Forecasting energy prices isn’t easy (PA Wire)

Finally, we have a competitive energy market on the horizon. Good news for consumers! Ovo Energy has set the ball rolling with a dual fuel deal (electriticy and gas) for an annual average of £2,275.

It is the first of its kind since the launch of the government’s £2,500 energy price guarantee, introduced when wholesale market prices looked primed to break the economy and leave households in dire straits. Many poorer Britons are still facing some horrible home budget dilemmas.

Curiously, there was no mention of the deal on Ovo’s rather clunky website when I went on a hunt; you’d think they’d want to boast about it.

Perhaps that’s because it is available only to existing pay-monthly customers, so it won’t benefit those on the wrong end of a forcibly installed prepayment meter. Ovo was among the three most “overzealous suppliers” named and shamed by the Department of Energy and Climate Change, along with British Gas and Scottish Power.

Perhaps there are other reasons that the company doesn’t want to shout too loud about the deal, which first drew attention when tweeted by Money Saving Expert’s Martin Lewis; this rose has some thorns.

Ovo explains the deal like this: “We know that many of our customers want the security of a long-term fix to protect them against the continuing energy price uncertainty.”

And, yes, there is a certain logic to that; consumers pay a premium for longer-term fixed-rate mortgages to provide themselves with certainty. Those who took out five-year or even 10-year fixes prior to recent rate rises will have breathed sighs of relief.

Ovo’s offer lasts for a year – a year in which Ofgem’s price cap, which covers standard variable tariffs, is expected to fall below the government’s £2,500 energy price guarantee and below the price of the deal.

Cornwall Insight, an energy analyst whose numbers are closely watched, predicts the Ofgem cap will fall to £2,000.62 for the third quarter of the year, and then to £2,023.94 for the fourth.

Forecasting energy prices isn’t easy; prices fluctuate for unpredictable geopolitical reasons, and Russia’s invasion of Ukraine contributed a great deal to the current spike. As a result, there are no forecasts available for next year. However, when I raised the question, I was told by the analyst that it doesn’t expect a significant change from the Q4 figures next year. HSBC is also predicting lower gas prices next year.

Ovo’s move is a welcome development from the perspective of the market. But its customers might feel less than enamoured with it if they are stuck paying quite a bit more than the cap come winter, especially if next winter is a cold one. Combined with the company’s troubling performance when it comes to the forced installation of meters, it could give Ovo’s PR department a busy few months.

Grant Shapps will probably be pleased about that; he can continue his naming and shaming of energy firms, diverting attention from his department’s spotty record on energy efficiency.

It isn’t just the government’s failure to secure domestic energy security that has left us exposed to international wholesale markets, it is that Britain still has some of Europe’s most draughty homes. That one’s not on Ovo or British Gas or Scottish Power.