How to beat energy price rises
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As E.ON becomes the last of the big six to hike prices, we look at why standard wait and switch guidance is wrong and how you really can beat energy price rises.
This is a theme I have covered many times over the past four years in order to show that standard guidance on when to switch energy provider is incorrect and will cost you more money.
Thankfully, over the same period, most commentators have stopped offering this standard guidance – but only to replace with more guidance that is sometimes flawed.
What is the old standard guidance?
The big six energy suppliers dominate the market, which is not particularly competitive. That's why, when one whacks prices up (or treats us to tiny cuts), the others follow suit. Usually it takes several months between the first price-change announcement and the last.
The theory is that you should always wait until the last change has been announced before comparing prices to see which is cheapest. Gas and electricity comparison tools usually show the new prices as soon as they are announced; they don't wait for the price change to take effect. This is because the change usually takes place within four weeks of the announcement, and it can take roughly that long for you to switch supplier (although your energy supply is never interrupted at any stage).
Why this guidance is flawed
The problem is that the price announcements usually – at least in the past four years – have affected the most expensive tariffs only. Most people are on these tariffs. If your supplier announces in the press that prices are rising, and it turns out that your tariff is affected, chances are you were shifted onto an expensive tariff in the past and you should have switched again some time ago.
In contrast, the cheapest tariffs rise and fall at different times to the changes announced in the press. That's because the cheap tariffs are driven more by genuine competition. The people who get the cheapest tariffs are the minority who shop around regularly.
What happened this year?
This brings me to why I'm writing about this today. Over the past few months all of the big six suppliers have announced increases, with the E.ON finally joining suit yesterday. Read E.ON to raise energy prices by 8.7% from January for more.
Comparing my data from the start of this period to the end, I see that the cheapest tariff in my test areas cost £1,032 at the start, and the cheapest at the end cost £1,036.
At just £4 per year more at the end of the period, that's basically the same price.
What this means is that, by waiting, you will have stayed on your more expensive tariff for a couple of extra months for no reason. Especially with cold weather settling in, this will likely have cost you a great deal more than £4 extra.
In future, don't wait to compare later because an energy supplier announces a price change.
The cheapest tariffs today
The end of the announcement period (before E.ON piped up) was a few weeks ago now, but today prices are still the same in my usual test areas, at £1,036.
I have also expanded beyond my usual test areas to include all 14 regions of Great Britain, and I have found the average price of the cheapest tariff is £1,040. The cheapest tariff in all regions is from Spark Energy which, in many cases, is around £100 cheaper than the next cheapest.
For average users, I see no good fixed deals right now. The cheapest fixed tariffs average around £130 more than the cheapest variable tariffs. Ovo Energy has the cheapest fix in most areas, but M&S and EDF top the fixed-tariff table in a few regions. Ovo's fix lasts 12 months, M&S' about 14 months and EDF's closer to 18 months.
These fixes are not cheap. Variable tariffs probably have to rise again by more than 15% in early 2013 for most of these fixed deals to be a good choice. If prices go up less, or later, they're unlikely to pay off.
I mentioned earlier that many publications have slowly stopped issuing the standard guidance to “wait and see” over the past four years. Unfortunately, they have largely replaced this by recommending you choose fixed deals. With fixed deals at such a high premium today, I doubt that advice will save you money either.
Remember that I'm referring to average users here and comparing simple averages across many regions. Depending on your location and energy usage, you might find that another deal is better than Spark Energy's, or that the extra cost of a fixed deal is actually not so bad.
Finally, when your supplier tells you its increasing the price of your tariff, you can probably get out of the tariff without paying exit fees, even if you just switched to it recently. You have to act swiftly though. Read more in The trick you can use against your energy provider.
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