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A cold wind blows on energy prices

Neil Faulkner
by Lovemoney Staff Neil Faulkner on 20 November 2009  |  Comments 2 comments

We demonstrate why now is the time to switch gas and electricity supplier. It's getting cold - and you are likely to save more than £200!

The future is from bright when it comes to energy prices. Here are some of the reasons I expect prices will rise in the future:

  • Low investment in gas infrastructure from Russia. This will increase energy prices throughout Europe, including the UK, five years from now.
  • An economic recovery. When prices for everything start rising, energy bills will rise even more quickly than they are rising now.
  • Industry developments. There's the much-needed and expensive infrastructural investment in green energy, and talk of a 'green tax'.
  • Weak competition and regulation. On top of all this, the energy suppliers will continue to make as large a profit as they can, which is what companies are designed to do, but most don't have the benefit of weak competition and regulation.

But coming right back to the present, we have a more immediate hit to our finances coming up. Did you know that night-time temperatures dipped to just two degrees in the south west of England a few days ago? This is a warning that the full cold of winter is likely just weeks away for the whole of the United Kingdom. With the cold comes higher energy usage and larger bills.

Why now is the time to switch

As I warned you nine months ago in Beware of energy-switching advice, the time to switch energy is not when other financial commentators and journalists tell you it is. They were telling you to wait, because British Gas had announced a reduction and the other suppliers were about to follow. They said you should see which supplier became cheapest after the changes and then switch.

I disagreed and explained back then that waiting would cost you more money. Turned out I was right  - recent energy-price reductions were a sham.

The best time to switch energy supplier is clearly not when most people think it is. I can tell you when the best time to switch energy is, and it's now: just as it's getting colder. This is because you want to be going into winter with the cheapest tariff possible. Obviously.

During the three coldest months we use around 41% of our entire year's gas consumption, versus 14% in summer. We use more electricity too (although sadly I don't have any figures).

I urged you to get switching back in September. Many of you by now will already have used your heating and, by the time a switch takes effect, which takes about four weeks, winter will likely be on us in full. This may be your last chance to get cheap energy (OK, relatively cheap energy) in time to catch most of your big heating bills.

Assuming, conservatively, that we just use a little more electricity in the next three months than during summer (remember we'll choose to stay at home more when it's cold and dark, and will need our lights more) I estimate that we'll get through around 40% of our entire gas and electricity usage for the year in the next three months, leaving just 60% to be spread around in the following nine months.

Doing some rough figures based on results from lovemoney.com's gas and electricity comparison tool, the average British Gas customer on a standard tariff will pay £470 during those three months alone. The average customer who switches from British Gas can expect to pay around £90 less at £360.

It's easy to switch

For the energy suppliers, it is almost literally just a matter of flicking a switch to change the supplier. Your gas and electricity is not disconnected and it continues to come through exactly the same pipes and wires. The only difference is the name at the top of the bill and, if you use our service, more than £200 less to pay for the average switcher over the year.

You should look at your existing contract to see if you'll lose any discounts by switching now, or if you're still in a period where you'll be charged an exit fee. You should weigh this up against the benefits of a switch, but remember you'll likely save the most money by switching now, so this is your best chance to get out. Plus, these issues will mostly affect just the households in fixed or capped deals or for those who've switched already inside the past 12 months.

Those of you on standard tariffs will be amongst those who make the largest savings. You'll be on a standard tariff if you've never switched since you moved into your property, or if you were on a  deal that has expired.

If you're on British Gas' Websaver version 1, I've encouraged readers to stick with that deal in the past. It comes with a guarantee that it will always be at least 10% cheaper than British Gas' standard tariff. Historically this used to put you at the top of the table or very near it.

However, the spread between standard prices and the cheapest prices has widened to more than 20% in most areas. Although the currently toothless OFGEM has criticised the increasing gap and it might eventually do something about it, it might also be worth surrendering the now not-so-wonderful guarantee and rejoining the annual game of switching energy. It's your call.

Cut the cost of your gas and electricity bill

Cutting your energy costs isn't just about getting the best tariff. If you're looking to cut the size of your energy bills and help the environment too, follow our ten-step action plan to cut your gas and electric usage by simply adopting this goal: Lower your household bills (you need to be registered on lovemoney.com to adopt the goal).

Alternatively, ask other lovemoney.com readers for their tips using our Q&A tool.

11% of customers received a quote saving them at least £350 with energy comparison through lovemoney.com

More: The best mobile phone deals ever! | Five ways to slash your energy bills

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Comments (2)

  • liesarenocomfort
    Love rating 134
    liesarenocomfort said

    Now may be the time to consider a renewable energy installation at home. From next April the Government should be introducing "feed-in tariffs" which will increase the amount residential customers get paid for generating their own electricity. At the moment there is quite a discrepency between what what you pay for electricity (which can be more than 20p a Kilowatt for consumption over a reduced price threshold which many suppliers have) and what you get paid by the supplier for what you put back into the grid (at the moment around 12p per Kilowatt - the amount varies between suppliers) but the new tariffs will reduce the gap, making a renewable energy installation one way of paying for electricity in advance and protecting yourself, to some extent, against future price hikes. The precise payment structures for generation are complicated and need to be researched fully and estimates for generation from renewable installation companies taken with a hefty spoonful of salt (if you halve their predictions you will be closer to reality). Also if you think you may be moving house in the near future the substantial capital outlay is probably not cost effective.

    Neil is right about it not all being about tariffs - I reduced my usage substantially with an Owl electricity monitor and have now become a bit of an Anorak about turning everything off (turning my printer off at the plug saves 1 Kilowatt a day, for example).            

    There is more information about the tariffs at the link below 

    http://www.trueenergy.co.uk/solutions/feedintariffs.asp

    Report on 20 November 2009  |  Love thisLove  0 loves
  • SOCRATES
    Love rating 7
    SOCRATES said

    Neil says "there is a much needed infrastructural investment in green energy"

    Yes - maybe there is - but only simply because we urgently need to conserve the resources of our planet - including oil. Do not be taken in by all governments' misinformation on carbon dioxide - the amount of CO2 is virtually unrelated to climate change. The evidence is all there - from tree ring data going back a few thousand years to ice core analyses going back hundreds of thousands - which evidence shows that our planet has been +13 degrees Centigrade hotter in the past than it is now - and clearly this could not have been caused by mankind. And the same data shows that CO2 levels increase AFTER temperature rises when it is released from the ocean.

    We are being scammed by governments and vested interests who will raise BILLIONS from "carbon taxes" and "emission permits". And why do so many scientists support the CO2 greenhouse gas theory? Because, like our once impartial MetOffice. their paymasters are governments or the same vested interests.

    However, last year, 31,000 brave scientists signed a statement in Oregan saying that they could see no connection between CO2 and climate change.

    Temperature variations occur mainly because of varying emissions from our Sun.

    "Socrates" - ex MetOffice

    Report on 20 November 2009  |  Love thisLove  1 love

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