Now is the best time to switch energy tariffs
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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.
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