Price cuts mean Ovo now boasts the cheapest energy tariff

Response to falling wholesale costs means Ovo now offers the cheapest energy tariff around.

Ovo Energy has cut the cost of its 12-month fixed gas and electricity deals by 2.5%.

The independent energy firm has made the move in response to falling wholesale costs. As a result Ovo’s most affordable deal, the Cheaper Energy Fixed plan, is now the cheapest tariff on the market.

Best buy

The Cheaper Energy Fixed is a dual fuel plan where 15% of the electricity supplied is green.

The tariff used to cost £1,042 a year for the average user (defined by Ofgem as using 13,500 kWh of gas and 3,200 kWh of electricity per annum), but has been reduced by £27, bringing the price down to £1,015 per year.

With the deal, the cost of gas and electricity is fixed for 12 months, so you will be shielded from unexpected price rises for at least one winter.

However, this tariff comes with exit penalties. You will be charged £30 per fuel if you decide to leave during the term.

Also you must pay by monthly Direct Debit and manage the account online to benefit from the deal.

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Cost reflexivity

A small price decrease in commodity costs – an element which contributes 46% to our energy bills – means that Ovo has been able to reduce its prices for the fourth time since autumn last year.

Ovo says as a small independent company it is able to respond quickly to changes in its costs, making it ‘cost reflexive’, unlike the Big Six.

Stephen Fitzpatrick, founder and managing director of Ovo Energy said: “There is a large part of every energy bill that we have no control over. However, we are fully committed to making sure that the elements that we can control, like the prices we charge for commodity, operating costs and profit margins will always remain cost reflexive. If the overall cost of supply drops we will always pass that saving on.”

Smaller companies tend to be more flexible than the bigger energy companies, which means they can do things a bit differently.

For example, amidst the barrage of price hikes announced by the Big Six energy companies last year, First Utility another independent supplier, pledged to keep prices frozen on its variable tariffs until after the winter.

The company has been true to its word, but that means it has had to recently annouce a price rise it has been delaying for some time.

Delayed price rise

First Utility has confirmed it will put its standard prices up by 3.5% from April.

Those on its standard iSave Everyday tariff will see prices go up by £39, taking the the yearly cost to £1,163 based on typical consumption.

The cost to buy energy constitutes £7, the cost to deliver energy makes up £19 and supporting clean energy is responsible for £13 of the rise.

In addition to these costs, First Utility will have to pay £23 per customer under the Energy Company Obligation . However, the company has taken the decision to absorb these costs rather than passing them on.

The 3.5% increase won’t come into effect until 1st April 2014, which means the company will have honoured its pledge to not hike prices during the winter when consumption is at its highest.

Instead the price rise will come into force when temperatures start to become milder and our energy use begins to drop off.

Less than 40% of First Utility’s customers will be affected, as the majority are on fixed price tariffs.

For those who are affected it will mean an average of £3.26 a month added to the iSave Everyday variable tariff.

Last year all the Big Six energy companies put their prices up by between 3.7% and 10.4% as winter set in. All blamed the rising cost of supplying energy, raw materials and having to fulfil Governmental green obligations.

But these companies had to perform a U-turn when the Government announced it would scale back green levies. Check out how prices went up and came down in this article: Energy price rises and cuts in full.

Despite the U-turn, First Utility's delayed winter price hike is still smaller than any of the Big Six energy companies.

The company also pointed out that despite the price rise on its standard iSave Everday tariff customers will continue to benefit from the company's Price Promise which guarantees it will be cheaper than any of the  Big Six standard variable tariffs.

The cheapest energy tariffs

If you are looking to switch to a new energy tariff here are the top five deals around right now.

Source: energyhelpline

*Savings against an average bill of £1,323 based on typical consumption as defined by OFGEM of 13,500 kWh pa of gas and 3,200 kWh pa of electricity.

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As you can see the table is dominated by smaller independent energy companies; none of the Big Six feature in the top five best buys at the moment.

The deals are all fixed, but only in the short-term, which means you will only be shielded from price rises over one winter.

If you want to fix for longer or are interested in a variable tariff head over to our energy comparison centre where you can find the top deals.

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