Energy prices boost as Ovo cut puts pressure on big six

And Scottish Gas owner Centrica may be following suit, writes Jeff Salway

HOPES of a much-needed fall in domestic energy costs have been raised after market minnow Ovo piled the pressure on the big players by cutting its prices.

The firm yesterday slashed its gas and electricity bills by 5 per cent. The move, effective immediately, benefits both new customers and existing customers who are due to renew their Ovo dual fuel fixed “new energy” tariff and reduces the average bill by £55 a year to £1,060.

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The tariff is now the cheapest fixed product available and will deliver a New Year fillip to some 70,000 Ovo customers. In November the group, set up in late 2009, cancelled a planned rise in variable rate tariffs in response to falling wholesale costs.

Stephen Fitzpatrick, managing director at Ovo, said: “Due to a recent decrease in wholesale costs, we are able to respond and pass on these savings to consumers, thereby giving them a cheaper and simpler alternative to the ‘big six’.”

Last summer the big six energy firms announced price hikes of between 15 and 20 per cent, which took effect during the autumn and means households face the biggest winter bills on record. The increases added around £100 to the average energy bill.

Since then, however, the wholesale costs faced by suppliers have fallen significantly, prompting calls for the savings to be passed on to consumers.

The only supplier other than Ovo to take action was market newcomer Co-operative Energy, which announced a 3 per cent price cut in December.

Scott Byrom, energy manager at Moneysupermarket.com, said: “Now is the time for all of the energy giants to reflect these savings in customers’ bills – but while we may be on the cusp of a sea change in the industry, bill payers can take action and make their own savings by making sure they are on the best energy deal for their usage and region,” said Byrom.

“Consumers who move on to the OVO Energy ‘new energy fixed’ tariff can expect to save around £230.”

And prospects of the big six boosting households by trimming their energy bills have brightened amid speculation that British Gas, which has 16 million gas and electricity customers – including around 1.5 million north of the Border, under the Scottish Gas brand – is considering a price cut.

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It is thought that the company believes it may be able to announce a price cut of less than 10 per cent when parent company Centrica unveils its annual results next month, as long as there is no wholesale gas price jump over the coming weeks. A cut of 5 per cent would save British Gas customers some £64 a year.

Tom Lyon, energy expert at uSwitch.com, said: “While the prognosis a couple of weeks ago wasn’t looking so good, consumers can feel heartened by rumours in the market that Britain’s biggest supplier, British or Scottish Gas, is considering a price cut before it announces its annual results next month. If this does indeed happen it will be a game changer as the other ‘big six’ suppliers will come under intense pressure to follow suit.”

Suppliers have been under increased regulatory and government scrutiny since last year’s moves and that would intensify if they fail to ease the pressure on customers, according to Lyon.

“But from the consumer perspective whether suppliers willingly move to reduce prices or are pressured into it, it really doesn’t matter – it will be good news for them and for their already tightened budgets,” he added.