Energy prices: why you should shop around to save money

Aug 28, 2015

Nine fixed price tariffs all come to an end this month – and many could end up paying more

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The UK's 'Big Six' gas and electricity firms have continued to face criticism for failing to cut energy bills in line with falls in wholesale prices. 

Fresh outrage was sparked by the latest half-year results report published by British Gas owner  Centrica, which revealed the supplier doubled profits over the first six months of 2015 to £528m. 

Despite the supplier cutting prices twice in a year, some say it is still not passing on all of the benefits of falling fuel costs.

But customers' getting a raw deal on energy is also a result of customers not shopping around or taking other measures to ensure they are getting the most for their money.

Ofgem, which believed the companies might be making excess profits and ripping off customers, referred the Big Six to the Competition and Markets Authority (CMA) last year. The CMA's full-scale competition investigation reported back this month and suggested an array of remedies to reduce bills and persuade customers to consider switching supplier.

How have prices changed?

The six major suppliers reduced their gas prices by between 1.3 per cent and 5.1 per cent during the first four months of the year. But Labour's pledge for an 18-month energy bill freeze meant the Big Six boosted their profits by keeping their prices artificially high, says the Daily Telegraph. Energy companies refused to reduce tariffs by too much in case they were forced to freeze prices under a Labour government.

"Wholesale costs dropped by 30 per cent, but companies reduced bills by only 1.3 per cent last winter," says the newspaper.  "Bills have remained high despite Labour's election defeat." Consternation has only grown as global oil and gas prices have fallen afresh over the summer.

British Gas, which is making headlines again after earnings soared in the first half of this year, denies it is making excessive profits.

It points to a pledge this month to further reduce energy tariffs by five per cent in the second half of the year, making it the first supplier to pledge two price cuts this year. It says this will save the average customer £72 a year.

But Ann Robinson of uSwitchtold Sky News the cuts were modest compared to the fall in wholesale costs and equate to just a six per cent reduction for the average dual fuel customer. She also questioned why "consumers still waiting for EDF Energy, E.ON, npower, ScottishPower and SSE to make further reductions".

How can you keep costs down?

Fixed-term energy deals are becoming an increasingly attractive option as prices soar. Most suppliers offer a fixed-price deal, in which they freeze the cost of electricity and gas units for a set period. However, some tariffs do incur cancellation penalties if you pull out early.

One of the cheapest fixed tariffs at the moment comes from Sainsbury's Energy, which is fixed until August 2016 and costs an average £903 a year, according to Uswitch.

Are there any other discounts or deals?

Experts recommend shopping around for the best deal in order to save cash, a process made easier in recent years with the introduction of price-comparison websites. Paying bills by direct debit and sending off regular meter readings to ensure you are paying for actual usage can also help to save money, as can signing up for both gas and electricity from one supplier and changing to online-only bills.

According to CMA, more than 95 per cent of dual-fuel Big Six customers would have saved money by switching tariffs or suppliers between 2012 and 2014. Customers could have made savings of up to £234 a year, it said.

It is particularly important to consider switching when a fixed-term tariff comes to an end. The Guardian notes nine fixed-rate deals from British Gas, EDF Energy, npower, Sainsbury's Energy, First Utility and Flow Energy all end in August, with many customers that just allow themselves to be switched back to their suppliers standard offer facing higher costs. Where bills are higher, "households will see an average 8.14 per cent or £90 increase to their annual bills".

Some, though, will see costs fall: those on British Gas Fix & Control August 2015 and Fix & Reward August 2015, as well as those on the Sainsbury's Energy Fix & Reward August 2015, will see their bills drop by an average £58 (4.8 per cent). That is not to say they still could not pay less elsewhere, however.

What is the CMA report going to change?

Despite early indications to the contrary, the regulator has not demanded the Big Six be broken up. It had been speculated the final report would seek to limit the power for the major firms by forcing them to split off their power generation capabilities from their retail operations, but its report states it has not found evidence of an unfair advantage. 

What is in the crosshairs, however, is the four-tariff simplified pricing offer imposed on the sector by the government three years ago. The idea was to introduce two core tariffs – one fixed and one variable – with modified versions to compete for customers. Suppliers would be forced to put people on the 'cheapest' tariff.

In practice, however, difficulties evaluating the best deal have resulted in customers paying more than they should and the CMA is said to favour scrapping this in favour of more flexibility.

Is that all the CMA report said?

Far from it. In a 55-page summary it recommended a range of potential remedies, including a plan for the regulator, Ofgem, to set up its own 'whole of market' price comparison website. It also proposed new reporting rules that would increase transparency on profits by requiring firms to report their retail operations as a 'standalone' business, and encouraging more customers to adopt so-called 'smart' meters to better understand what they paying.

What other steps can you take?

Draught-proofing your house and insulating hot water cylinders and exposed pipes can help save cash by keeping heat in. Campaigners say investment in house insulation is the only way to control high energy bills and have called on the government to help home-owners tackle the problem. Installing a room thermostat can also help regulate where and when you heat your home, while ensuring lights and appliances are turned off when you don't need them can also contribute to lower energy bills.

You could do as former energy secretary Ed Davey does: wear a jumper and turn down the heating. Reducing room temperatures by just 1C could apparently cut your heating bill by as much as £65 a year. However, Public Health England has urged people to keep their living rooms heated to at least 21C and other rooms at 18C to avoid potentially fatal health problems.

How do UK costs compare with prices in other countries?

According to the latest Department of Energy and Climate Change statistics, average domestic gas prices in the UK are lower than several European countries, including Germany, France, Ireland and Belgium, but nearly double the prices in the United States. For electricity, UK prices were lower than at least eight other countries in the European Union.

However, the UK is said to be second only to Estonia for people struggling to pay their energy bills across Europe, with 4.5 million households classed as "fuel vulnerable", spending more than £1 in £10 of their income on energy. Campaigners say households pay much higher bills due to the amount of heat lost from homes.

Click on the image below for an international comparison:

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We know that the energy market is rigged by the big power comapnies yet Ofgem does nothing about it. The global wholesale price of many energy products has actually fallen in recent years although the idea of the fat cats reducing costs on households in Britain is laughable.

well if we build geo thermal energy plants up and down the UK it would solve all this BS with the prices.Renationalise the energy market in the UK

Get the Geothermal through a pipe from Iceland. Scots and Iceland been on about it for years. Put the greedy twats out of business