Research published on 1 March 2023 by Future Energy Associates (FEA) estimates that two energy firms offering new fixed tariffs will make average profits of £484 and £469 per customer. The tariffs examined were the Ovo 1 Year Fixed of 23 March 2023 and SSE 1 Year Fixed v281.
On that basis, customers who switch lose £212 on the Ovo fix or £197 on the SSE offer compared with staying on the government's Energy Price Guarantee and then moving to a variable tariff governed by the Ofgem price cap from 1 July1.
| Measure | Ovo 1 Year Fixed | SSE 1 Year Fixed |
|---|---|---|
| Annual cost to households | £2,275 | £2,260 |
| Forecast average Ofgem price cap | £2,063 | £2,063 |
| Annual excess cost to households | £212 | £197 |
| Annual supplier cost of buying energy | £1,791 | £1,791 |
| Annual supplier profit | £484 | £469 |
| Annual profit as a percentage | 21.27% | 20.75% |
FEA said the profits follow from suppliers buying energy at a fixed cost and selling it below the current Energy Price Guarantee but above the likely level of bills once the Ofgem price cap returns for consumers from 1 July1. Clem Atwood of Future Energy Associates said:
"While costs continue to come down, suppliers will look to exploit consumer desires to move onto lower rate tariffs by trying to fix customers at close to current rates. Our analysis of costs shows that recent fixed tariffs are likely to make suppliers around 20% profit, whilst fixing customers at unit rates above the forecasted Ofgem price cap."
The End Fuel Poverty Coalition, part of the Warm This Winter campaign, said the "Wild West of the energy market is back" and that firms were "playing on the cost of living crisis"1. Jacky Peacock of Advice for Renters said the organisation would warn families to avoid such offers, which she described as "little short of scams"1. Ruth London of Fuel Poverty Action and Tessa Khan of Uplift also criticised the tariffs1.
The figures rest on FEA's own methodology, which uses electricity forward prices for a 12 month period, quarterly wholesale prices adjusted for non-wholesale bill components, and Ofgem annual consumption values and standing charge forecasts, with gas prices derived from the gas to electricity ratio in Cornwall Insight price cap forecasts1. The model assumes the whole difference between the cost to the consumer and the cost to the supplier is profit; FEA states this is fair because Ofgem reflects supplier costs in its quarterly price cap calculations1. The analysis notes that prices were correct at the time and may change considerably from the predictions made1. No response from Ovo or SSE to the analysis has been reported.
Why it matters for households
A fixed tariff sets unit rates and standing charges for a set period, so the bill does not move with the price cap. The trade-off shown here is that the certainty is priced above the forecast cap, meaning a household on either tariff pays more over the year than one that stays on the capped variable rate. For a home's energy independence, the calculation turns on whether the cap is expected to rise above the fixed rate during the term; on these forecasts it is not. The comparison between a fixed tariff and staying on the price cap is the central question, and the wider differences are set out in fixed vs variable energy tariff. Households weighing an offer from either supplier can see how each structures its deals on the OVO Energy tariffs and SSE tariffs pages.
What happens next
The Energy Price Guarantee remains in force until 1 July, when the Ofgem price cap is expected to govern consumer bills again1.
Sources1 cited
- Energy firms set for profits boost from fixed tariffs, endfuelpoverty.org.uk