A popular energy tariff that charges customers the equivalent of wholesale costs – and could cost less than the energy price cap – is expected to re-launch next week.
Octopus Energy’s “Tracker” deal passes on the wholesale market rates to customers, which means the price of their energy can change daily.
The tariff is being reopened to customers at a time when wholesale prices are decreasing, leading to households facing smaller bills than they have over the past year. But is the deal a good one? i investigates.
How does it work?
The tracker passes on wholesale market rates to customers which are reviewed daily, which means that if there’s a spike in wholesale prices, the unit rates will also fluctuate to reflect this. This compares to fixed rates where customers are charged a set amount and variable rates which are currently capped by Ofgem’s level of £2,074.
In theory, this should mean customers can easily determine exactly how much they are paying for their energy.
Households can see how the current day’s energy price compares to a standard variable tariff, meaning they can technically adjust their consumption during peak and off-peak days – although this would require daily monitoring.
Octopus makes money by adding a “small” percentage on top of this.
The tariff is set to be relaunched next week after it opened to 50,000 applications earlier this summer and is expected to start accepting new customers from tomorrow. Households that have previously signed up to the waitlist will also be moved to the tariff as of tomorrow with their bills backdated to 1 July.
Could this save you money compared to other tariffs?
At the moment, wholesale prices are down and so households will likely see cheaper bills than those on variable deals, which are capped at Ofgem’s new level of £2,074 for the average home a year.
Over the last year, Octopus said an average household on Octopus Tracker would have saved 4 per cent compared to the current price cap.
However, should wholesale prices increase again, customers will end up paying even more on their monthly bills.
While there is a maximum cap on Octopus Tracker prices at 100p per kilowatt hour (kWh) for electricity and 30p per kWh for gas, this is still much higher than the price cap, which is 30p per kWh for electricity and 8p per kWh for gas.
Octopus warns customers that over the warmer months, prices tend to be lower, and it expects them to likely double when the heating comes on and the sun starts setting earlier.
Natalie Mathie, energy expert at Uswitch.com, said: “While this might be a good deal at the moment, as wholesale prices are lower than they have been, it is important to note that these prices can go up as well as down and will change day to day.
“If prices do go up, then bills will rise too — and the maximum limit for this tariff is allowed to be higher than the energy price cap.
“Only fixed deals can offer consumers the certainty of knowing what you will be paying for the full duration of a deal, which is usually a year.”
The product has no exit fees which means people can leave penalty-free if their bills are too high.
Gareth Kloet, energy expert at Go Compare, added: “Anyone considering this tariff should think carefully about whether they could afford the higher prices should the wholesale energy costs rise and if your household is a heavy electricity and gas user – as you will be paying significantly more than the government cap if wholesale prices rise.”
There are several deals cheaper than the price cap, for example, Utility Warehouse is offering an energy deal for just £1,974 a year. However, it is only available to those switching two or more additional utilities to the supplier including mobile, broadband or insurance.
How can you sign up?
The Tracker is currently closed to new sign ups to “protect” consumers from a period of huge wholesale prices but is expected to re-open next week. Customers must also have a smart meter.
Places are limited and existing Octopus customers can register their interest to join the product and will be added to the waiting list.
If one has switched away from Tracker, customers cannot sign up to it again for another nine months.
