Energy price hike cancelled: will the Big Six follow suit?

Ovo Energy has cancelled plans to hike its prices this winter after wholesale costs fell lower than expected.

The news comes as British Gas promises to overhaul its energy tariffs in a bid to help make buying energy a simpler, fairer and more transparent process for customers.

Ovo Energy’s move to cancel its 3.5% price rise, scheduled for 1 January 2012, will affect 10,000 customers on its variable rate tariffs – just over a sixth of its total customer base of 69,000. The increase would have seen customers' bills jump from £1,120.02 a year to £1,158.87.

Stephen Fitzpatrick, managing director of Ovo Energy, said: ‘Since we announced the planned increase in our variable prices, on the 26^th October, wholesale costs have fallen. In response to this change in the market we’re delighted to announce that we will not go ahead with the planned increase’.

All of the major energy suppliers have increased their gas and electricity prices in the last few months, some by as much as 19%.

Customers hoping the Big Six energy suppliers – British Gas, EDF Energy, E.ON, Npower, Scottish and Southern Energy and Scottish Power – will follow suit and cancel their price increases, however, are likely to be disappointed, according to Mark Todd, director of price comparison website Energyhelpline.com.

‘Ovo is a smaller supplier and we are not expecting price drops from any of the major providers at the moment’.

‘Wholesale energy costs have fallen by 16.5% since early September, according to energy analysts ICIS Heren. However, even though we would like to see domestic prices follow suit we believe the chances of big drops now are low and they are not likely to come before the spring,’ he added.

Tom Lyon, energy expert at uSwitch.com, agreed with Todd, though added Ovo's move leaves the big six looking 'rather exposed'.

'Do we expect the big six to follow suit – certainly not for a while,' he said. 'Because of how they buy their energy – in long-term forward contracts – it takes time for a change in wholesale prices to work its way through to customers. Suppliers like to see a sustained and consistent trend in wholesale prices before acting'.

Audrey Gallacher, director of energy at Consumer Focus, however said Ovo's announcement is a 'good sign'.

'A smaller supplier such as OVO may be able to react more quickly, but it obviously can’t operate on the same economies of scale as its much larger rivals. If it can cancel price rises because market fundamentals change, it begs the question why can’t others?' she said.