Energy prices: how to save money on electricity and gas

Jul 10, 2015

Investigation by watchdog likely to abandon simplified tariffs which have been 'bad for customers'

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The UK's Big Six gas and electricity firms are facing fresh criticism for failing to cut energy bill prices in line with falls in wholesale prices. 

Wholesale electricity prices dropped 11 per cent last year, while the average dual fuel bill across the Big Six energy firms fell by just 2.2 per cent, says Ann Robinson, director of consumer policy at uSwitch.

City AM reports that the ICIS Power Index reveals that the UK's wholesale gas and electricity prices fell to five-year lows in the second quarter of 2015, which will bring pressure for price cuts in the coming months. 

Energy Secretary Amber Rudd wrote to the major suppliers – British Gas, SSE, Npower, EDF, Scottish Power and E.ON – earlier this year urging them to pass on the fall in wholesale gas and electricity costs. 

"In light of the greater regulatory stability we are providing and continued stability in wholesale gas prices, I believe that energy suppliers should be seeking to regain the trust of consumers by reflecting this in their pricing decisions," she wrote.

Ofgem, which believed the companies might be making excess profits and ripping off their customers, referred the Big Six to the Competition and Markets Authority (CMA) last year. The CMA's full-scale competition investigation is due to report next week and could prompt major changes in how you are charged.

Richard Lloyd, executive director of consumer group Which?, claimed energy firms had "run out of excuses" for not cutting bills and urged them to "do the right thing". 

But the firms have pointed to the gas price cuts they made earlier in the year. A spokesman for Energy UK, which represents the major suppliers, said the industry "as a whole is keen to work constructively with the new government to ensure energy security at a price everyone can afford".

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. Bills have remained high despite Labour's election defeat," says the newspaper.

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 First Utility, which costs an average £913 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.

What is the CMA report going to change?

Despite early indications to the contrary, it appears the regulator will not demand that the Big Six are broken up. It had been speculated that 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 the Daily Mail says 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, with suppliers 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.

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:

A survey by uSwitch, published today, found that almost four million UK households owe £507m to energy firms, marking a nine per cent rise in debt since last year.

The number of homes owing money to gas and electricity firms has increased by 260,000. Almost a third of households in debt said they owe their supplier more than they did a year ago. uSwitch notes that it comes in spite of higher average disposable incomes and the modest cut in energy bill prices.

The research showed that the average debt per household has risen to £130, up from £128 last year. Ann Robinson, director of consumer policy at uSwitch.com, said: "Pre-payment meters were forcibly installed in almost 100,000 homes last year due to debt, yet our figures suggest this could be just the tip of the iceberg. This is evidence that energy has become totally unaffordable for millions of homes." 

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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