Follow this topicFollow this topic Knowledge » Gas and electricity

Now is the best time to switch energy tariffs

Neil Faulkner
by Lovemoney Staff Neil Faulkner on 18 September 2009  |  Comments 12 comments

The evidence is stacking up that the best time to switch energy is not when you think it is.

Whilst I'm obviously always bringing you quality, topical financial tips (source: the girlfriend, 2007) I always have long-term projects burning away in the background.

My current one has been running since January. It's about the best time to switch energy suppliers. So far, I've collected data over nine periods, created 39 documents and spreadsheets, and written five articles. Here's what I'm testing:

The best time to switch is usually before winter and the worst is after all the big six have issued price-change announcements

Those are my hypotheses that I'm trying to either prove or disprove. Either way the results go will teach us something useful.

Where financial commentators are going wrong

Commentators always say that the best time to switch is after price-change announcements. You stick with your current supplier until British Gas or another of the big six suppliers announces it's changing prices, and you keep waiting until the other five also announce their changes. That's when you compare.

On the surface, this sounds like common sense, but in reality it omits important factors:

1. Most price changes are not announced.

2. Those that are announced don't affect all tariffs.

3. We use more energy in winter.

4. The timing of the announcements is important, in particular whether they come during the hot or cold months.

I expect to have a great deal more to say before the end of winter, but here's a short summary of my key findings so far:

Real reductions are offered to people who switch only

When you read about reductions in the papers, these are the public-relations reductions. What I mean is, some customers get reductions but many others don't.

My research so far has found that it's only customers on expensive tariffs - typically the suppliers' 'standard' tariffs - who benefit from these reductions. (The only exception I've seen was earlier this year when the few people lucky enough to be on British Gas' Websaver version 1 will have benefited.)

What's more, even after the reductions these tariffs remain very expensive compared to the cheapest tariffs - which don't get cheaper at all! Therefore, waiting to switch makes no sense as it costs more money.

Energy suppliers delay lowering prices till spring

I've been testing the theory that suppliers with pressure on them to reduce prices usually succeed in delaying decreases till after winter, so they can charge us more during the months where we use more energy. The evidence I've collected supports this.

However, I've also been testing that they try to put up their prices just before winter. The thing is, my analysis now shows this isn't necessarily the case. Suppliers aren't being that strategic about raising prices. It's more likely that they are trying to increase prices at any possible opportunity and at the earliest possible opportunity.

If they can come up with a reason to increase prices for winter, that's just an excellent bonus for them.

Prices this winter

The suppliers' PR - or propaganda - machines, which make price increases sound so plausible (to Ofgem, if not to the rest of us), don't always work. I think this year suppliers will find it a bit harder than normal to increase prices before winter, because they can't keep using the argument they were using last year.

This means there's 'just' a 50% chance of an increase sometime in early winter.

Now is the time to switch

The suppliers have done well to contain price reductions this summer despite much lower costs, but they have had to give up some ground. The cheapest tariffs have slowly whittled down in price for new customers over the past two months.

(Notice there were no press announcements, because they don't want to announce to their standard-tariff customers that there are much cheaper deals available.)

Even after about a dozen changes, reductions still amount to just 3.5% to 10.5%, depending on your circumstances. (New supplier Ovo is offering some people the 10.5% saving.)

Still, 10% could be a very decent reduction if it lasts through at least a month or two of winter, and an excellent one if it lasts through all the cold months.

Also, remember that those reductions (3.5% to 10.5%) are just the cream on the cake if you haven't switched for a while. It's only people who were on the very cheapest tariffs two months ago that will save such small amounts. Most people will save an awful lot more on top, as I wrote here.

It's possible that a few more price reductions will trickle in over the coming weeks, but expect them just to continue to chip very small amounts off. We've been averaging roughly a 0.3% to 0.9% reduction per change so far.

Switching can take four weeks, so if you switch now you'll benefit from a cheaper tariff before you're using your heating too much. Your alternative is to take a chance that the delay in switching will be offset by larger decreases in prices but, if I had to guess, I'd say that now is the best time to switch.

Compare gas and electricity prices through lovemoney.com

More: Recent energy-price reductions were a sham | When to switch energy tariffs

Enjoyed this? Show it some love

Twitter
General

Comments (12)

  • cleeve exile
    Love rating 1
    cleeve exile said

    I completed a price comparison for dual fuel and found E-on fixed rate until Dec 2010 offered a considerable saving on my existing supplier. They were much cheaper on my annual useage but only because they did not charge a daily fee on either utility. My existing supplier Scottish Hydro has a much lower unit tariff. In fact E-on has a staggered pay rate benefitting the higher user. The initial rate for the first few thousand units was in fact double my existing tariffs and when it does reduce it is still more expensive than Scottish Hydro. So my quandry is if Scottish Hydro reduce or eliminate the daily charge will my changing be false economy?

    Report on 23 September 2009  |  Love thisLove  0 loves
  • Hoarder
    Love rating 0
    Hoarder said

    I have changed my suppier to EDF online and effectively the annualised reduction in my monthly direct debit equates to my entire gas bill for the last twelve months.

    This is the first time I have changed and there will never be another such reduction. Unfortunately it lasts until the middle of next year when I will have to do it all over again unless the kind chappies do something spectacular for me.

    I decided that as my previous suppliers were offering lovely discounts to all and sundry, but not to me, they had forfeited their right to my continued custom. Any glee I might have is short lived when I consider for how long I have been overpaying for my supplies.

    Customer loyalty has to be earned and those two companies failed miserably. For the record they were BG and Npower

    Report on 23 September 2009  |  Love thisLove  0 loves

Post a comment

Sign in or register to post a reply.

Our top deals

Credit card
company
Balance transfers rate and period Representative
APR
Apply
now

Barclaycard 31Mth Platinum Visa

0% for 31 months (2.99% fee) Representative 18.9% APR (variable) Apply
Representative example: Assumed borrowing of £1,200 for 1 year, at a Purchase Rate of 18.9% (variable), representative 18.9% APR (variable). Credit available subject to status. A Balance Transfer fee of 3.5% will be applied, then reduced to 2.99% by a refund (terms and conditions apply). Plus an additional £20 fee refund on balance transfers over £2000.

Barclaycard 30Mth Platinum Visa

0% for 30 months (2.89% fee) Representative 18.9% APR (variable) Apply
Representative example: Assumed borrowing of £1,200 for 1 year, at a Purchase Rate of 18.9% (variable), representative 18.9% APR (variable). Credit available subject to status. A Balance Transfer fee of 3.5% will be applied, then reduced to 2.89% by a refund (terms and conditions apply). Plus an additional £20 fee refund on balance transfers over £2000.

MBNA 30Mth Platinum Credit Card Visa

0% for 30 months (2.89% fee) Representative 18.9% APR (variable) Apply
Representative example: Assumed borrowing of £1,200 for 1 year, at a Purchase Rate of 18.9% (variable), representative 18.9% APR (variable). Credit available subject to status.
W3C  Thank you for using Three Kings