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When to switch energy tariffs

Neil Faulkner
by Lovemoney Staff Neil Faulkner on 25 June 2009  |  Comments 5 comments

Timing is everything in the energy switch, but the guidance offered by most websites on when to switch is seriously flawed.

The guidance you read on when to switch energy supplier is always the same, except in my articles. I've been building up evidence over time to prove that the standard advice is wrong. Today I have some more for you.

Standard advice

When one of the big energy suppliers announces cuts, the other five inevitably follow. Each round of changes takes up to four months. Most financial journalists make the mistake of advising you that it's best to wait until all the suppliers have announced their cuts, before switching.

It's not that simple

However, that guidance is based on too much faith in the energy industry's price-reduction claims. It doesn't take into account that energy suppliers have lots of different tariffs (purely to confuse consumers) and that they don't reduce all of them at once.

Most recently I wrote about this in Recent energy-price reductions were a scam. When you saw the news earlier this year about suppliers reducing prices, it was just the expensive tariffs that suppliers reduced. Even after the cuts, the reduced tariffs remained £75 to £260 more expensive than the tariffs that were cheapest before the reductions.

These cheap tariffs, on the other hand, didn't get any cheaper at all. If anything, they got a little more expensive. This means you missed out on cheaper prices by waiting several months for no reason.

To put it another way, all the announcements this year in the press and on websites (other than on lovemoney.com, of course) saying 'Energy has got cheaper!' were just plain... wrong. Yes, some tariffs got cheaper, but those tariffs remain way more expensive than the best tariffs. The best tariffs are unchanged.

It gets worse

The standard guidance is even worse than I have previously written in any detail. It fails to take into account our seasonal energy usage. Most of us use more energy in the cold and dark months because we heat our homes and put the lights on earlier.

Energy companies like to drag out their price reductions from the tail-end of winter right through to spring or early summer. British Gas announced its first reduction in January. If you decided to wait until the final energy supplier announced its price reductions in May, you would have continued to pay high energy prices while you were using a lot more energy. If you switch in late spring or summer, you'll be using a lot less, so the savings you'll make will be much smaller.

I've got more evidence for my growing pile

Today I got some figures, thanks to Florian Ritzmann of Xelector Services (which created our gas and electricity comparison tool) showing seasonal gas consumption from one of the biggest suppliers, E.ON.

E.ON customers' gas consumption

Season

Consumption

Summer (May to July)

11.5%

Autumn (August to October)

14%

Winter (November to January)

40.5%

Spring (February to April)

34%

The table shows we use almost three times more gas in spring as in summer, and even more in winter. I should think most of our electricity bills will also be higher in winter due to using the lights more and staying in from the cold.

This means that you would have been worse off waiting to switch, even if the cheapest tariffs had been reduced (which they weren't)! You would have been paying a more expensive tariff while you were using more energy.

Based on the figures above, on my own records, and on data from our comparison tool, I calculate that if you'd switched before the price reductions were announced you'd have been at least £60 better off in just the three spring months (based on an average user in Farnborough on a standard British Gas tariff). Indeed, you'd probably be even better off than that, but I can't be more accurate as I don't have seasonal figures for electricity usage.

Who would turn down an extra £60 these days?

But now prices have really fallen!

As I said earlier, when you read the big headlines of falling prices, and of energy suppliers following each other, this is referring to a reduction in their expensive tariffs. It's these announcements that other commentators base their guidance on.

But when the cheapest tariffs get cheaper, they do so very quietly. You don't read about it in the papers, because the energy companies don't announce it. There's no obvious pattern, because when the big six reduce the prices of their cheapest tariffs, they don't copy each other. There's no easy-to-follow domino effect.

There is one place where you can follow the real energy-price reductions and that's at this website! Today, I'm pleased to report that the cheapest tariff still available to new customers has finally got cheaper. Websaver 3 from British Gas has come down in price. An average user in Farnborough might now save an extra £36 on the annual bill, bringing the total to about £145.

A £36 extra reduction per year doesn't sound so impressive now, does it, versus the £60 extra saving you could have made between February and April alone?

More guidance

Those on British Gas' Websaver version 1 will still be getting a good deal, thanks to its excellent price guarantee. That's a tariff to hold on to for the time being. Otherwise, if you're on a variable tariff that was reduced in price recently, you're on one of the expensive tariffs! This will include anyone who has never switched, or anyone who has not switched since they moved into their current home. You people would save a lot of money even during summer, so should switch away from your hefty tariffs now.

My own standard guidance is to look carefully at the small print before you switch, because it's getting steadily worse. You can see a summary of charges, discounts and fees quite easily in our gas and electricity comparison tool. Just click on 'more details' in the results page.

> Compare gas and electricity prices from the big and the small suppliers through lovemoney.com. You'll pay the same price - or less - than if you went direct!

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Comments (5)

  • beneix
    Love rating 0
    beneix said

    The other thing to consider is that while your energy usage is high (in the cold season), you are typically better off on a tariff with a standing charge, while during the low-consumption months, you are better off with no standing charge.

    You could conceivably play a seasonal game here and switch tariffs twice yearly -- but I haven't done the maths to show the possible gain. I suspect it is small enough that most people won't think it worth the hassle in itself, but combined with the points in the article...

    Report on 01 July 2009  |  Love thisLove  0 loves
  • Neil Faulkner
    Love rating 32
    Neil Faulkner said

    I believe it is worth it, beneix. I've studied it a little. However, I've never more then mentioned the possibility in passing in articles before, rather than written the calculations and how to go about doing a twice-yearly switch in full. This is because there are very few people who could be bothered to do so, meaning I'm better off researching something else. If I have a week when this website wants me to write more than usual then I'll see if I can fill in this gap.

    Neil (the author)

    Report on 02 July 2009  |  Love thisLove  0 loves

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