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How to deal with energy price rises

By Marc Shoffman
Friday, February 2nd 2018

Energy suppliers are like that weird ex-boyfriend or girlfriend. Things start off well but somewhere down the line they expect more from you while giving nothing extra in return. Like an ex, you are better off without them. You could do so much better – here's how.

When could energy prices go up?

Energy prices change regularly and it's hard to predict when your provider will change their deals, but if you haven’t switched in recent years it's likely you're already paying too much.

End-of-contract price rises

One of the main reasons that energy prices rise for a household is when a deal comes to an end. Many forget to switch provider once their current tariff finishes.

Typically, once a tariff expires the supplier will move you onto its standard variable tariff (SVT.) This is invariably more expensive than other deals on the market as it's just a default rate with no perks. Industry regulator Ofgem estimates around 19m domestic accounts are on SVTs, costing around £300 more than the cheapest deal on the market.

Mid-contract rises on a variable tariff

Suppliers can also increase prices if you are on a variable rate. This is a tariff that prices a deal based on the current wholesale energy market rate. This can be changed at any time but suppliers must give 30 days’ notice and allow you to switch without any exit fees during that time. They must also complete this switch no later than 20 days after the increase was due to start. You can complain to your supplier if you weren’t given sufficient notice of any changes and there is an energy ombudsman if your issue can’t be resolved amicably.

Why do energy suppliers hike prices?

There are several factors that influence the price of energy, and suppliers can cite these as they please as an excuse to increase bills.

Wholesale costs of fuel

The biggest influence on your bill is wholesale costs. This is how much it costs your supplier to get the gas or electricity to you.They need to purchase from electricity exchanges or through a generator or gas producer. The cost of the wholesale energy will be determined by the price of fuels such as oil, gas and coal.

Anything from political instability to economic events can impact these prices and suppliers aren’t just competing with others in the UK but around the world. If there is suddenly an oil shortage because of a war in the Middle East there will be less to go around, which pushes up demand and therefore the price.

Suppliers try to beat demand from competitors by purchasing the energy in bulk, but this can mean they end up offering more expensive deals if prices later fall and they are stuck with fuel they have already paid a higher price for.

Cost of supplying the energy

Once the suppliers have purchased all the energy they then need to get it to you through wires and pipes. They have to pay to maintain these passages and that is often passed onto those paying the bills.

Government costs

There are pressures from the government on energy companies that cost money. Suppliers are required to help households make their homes more energy efficient through changes such as insulation.

Energy companies are also in the process of rolling out smart meters across the UK. This is expected to boost energy efficiency and is technically free for customers. But ultimately it is being paid for through customer bills.

Pressure from the competition

Technically this should push prices down. The more suppliers there are, then the more competition for customers, therefore tariffs should come down in price to become more attractive to the public. The trouble is, many of the smaller and cheaper players regularly top the best buy tables, but don’t have the marketing budgets of the better-known Big Six.

This means suppliers such as Npower, Scottish Power, British Gas, SSE, Eon, EDF, can attract customers more easily even if they don’t necessarily always offer the best deals.

Profits over people

Lastly, most suppliers are not charities. They are profit-making businesses and in some cases, are listed companies wanting to impress and boost the coffers of their directors and shareholders. This means they are free to set their own prices with a view to not just attracting customers, but supporting their bottom line.

In addition, they have their own offices and staff to pay for, plus their own energy bills. This doesn’t mean you have to put up with it though. You are able to vote with your feet.

Shop around to find a better energy deal

Don’t just put up with higher prices at the end of a deal or even what you have been used to paying for years. The Government estimates you could save £300 a year by switching energy provider, while comparison websites put the savings at closer to £500.

Energy suppliers are required to tell their customers if they can offer a better deal than their current tariff. You will find this information on your latest bill and it will show how much you could save. But it is also worth looking at the whole of the market to see if you are already paying too much.

Use a comparison service to make the process easier

You could visit individual supplier websites to get quotes or a more efficient way is to use an energy comparison website. These take your current postcode, tariff and energy usage and estimate how much you could save on other deals. In some cases, a comparison website will manage the switching process for you, but it is also worth selecting an option to display deals that you would need to move to yourself as they may be cheaper.

Filter your search results by both dual fuel, which combine gas and electricity – or look at both power sources separately. Dual fuel is typically cheaper but this may not always be the case. Our guide to energy switching will tell you all you need to know.

Lock-in your rates with a fixed tariff

Consider whether it's worth opting for a fixed tariff over a variable one to protect yourself against increases. A supplier may be upping prices because they think the cost of energy will go up, but if you're on a fixed deal, you'll be immune to the increases for the term of the tariff.

A fixed deal, which typically lasts for a year, 18 months or 24 months, locks in the rate at which your energy is worked out, so it doesn’t matter if wholesale prices change over that period. Even if prices don’t increase, this at least gives you some certainty of what you will be paying.

You do, however, need to consider what prices will be like when you come to the end of a deal and whether you will end up coming off a fixed tariff just as energy prices go up or even if prices will have fallen just as you fix. In this situation you would still be free to leave but may face exit fees.

Suppliers can’t raise rates on fixed tariffs mid-contract unless there is a Government increase in VAT or a structured change is set out in the contract. Fixed-rate energy tariffs have a set formula to calculate your energy usage, or kilowatt hours (Kwh.) This means your monthly direct debit may increase if you use more energy than initially predicted when you signed up, but the rate at which it is worked out will remain the same.

Take a chance with a variable tariff

In comparison, a variable tariff is based on the wholesale energy price so you would automatically get hit if your energy supplier increases its prices. Variable tariffs can often hit the top of the best-buy tables, especially if the price of oil or gas has fallen, but there is always the risk that this will change.

You should be given 42 to 49 days of notice before a fixed-length contract ends, during which time you can shop around. Prior to this notice period you may be charged exit fees if you leave. Suppliers are also supposed to notify customers if they are coming to the end of a deal and you are entitled to complain if this wasn’t provided.

Use energy efficiency tools to keep tabs on your usage

If you can’t find a cheaper energy deal, at least make sure you are paying the right amount for your usage. The best way to do this is by providing regular meter readings rather than letting your supplier make estimates.

Check your energy account to see if you are in credit, which may suggest you are paying too much and need your direct debit reviewed. Also consider energy efficiency measures that should cut down your bills such loft insulation or get a smart meter that shows how much energy is being used in real-time.

Energy tracking devices such as Nest or Hive can also reduce your bills. They let you monitor where you are using most power so you can cut down. You can also control your heating more efficiently from these apps outside your home so if you are delayed back from work you can just switch it on later rather than warming an empty house.

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