What a difference a few months makes. Less than nine months ago, I wrote about energy price fixes for Times Money Mentor at a time when Government help was severely lacking, bills were predicted to hit an average of £6,500 a year and the cost-of-living crisis loomed large.
You can check the column out here to see if my future predictions came true!
Well, we’re not quite out of the woods yet, as anyone with a mortgage or visiting a supermarket will be acutely aware of. But finally, we might just see some good news when it comes to the cost of energy…
…Or will we? Economists have been breathlessly reporting that inflation and energy prices were going to dramatically drop from July. Only for inflation to increase, the housing market to slip in to stagnation – and the wholesale energy market stubbornly failing to drop as much as had been predicted.
But let’s cut to the chase. In the past, if you wanted to save money on your energy bills, the best way to do it was by switching to a new service provider. So if the prices do drop, do you stick or twist? Here’s my guide.
What’s the deal with gas and electricity prices?
For the last few years, the wholesale price of energy has fluctuated wildly due to a variety of factors, from the war in Ukraine to the complexities of supply and demand and underlying infrastructure.
All of this led to combined gas and electricity bills averaging just shy of £5,000 last winter. This matters because back in 2021, the average bill was £1,333. Because of such huge, life-affecting price volitivity, it’s important to have some perspective on where we might have been had things been less complicated. Prices may be coming down – but not to anywhere near where they might have been before.
According to Cornwall Insight, the energy research and analysis group, we might see average bills of £2,053.77 in July to September 2023, £1959.58 in October-December 2023 and £2,026.12 in January to March 2024 (prices go up according to demand in Winter). So basically, use £2,000 as your baseline when working out what you might be paying over the next six months.
What about the Energy Price Guarantee and the Energy Price Cap?
Just to throw a spanner in the works, there are two other factors that affect the bills we pay.
- The Energy Price Guarantee (EPG) is set by the Government and covers the maximum average price that we should be charged for energy. This is currently £2,500.
- The Energy Price Cap (EPC) is set by Ofgem and covers what the regulator tells the energy firms the maximum average amount they can charge is.
Ofgem measures energy usage in ‘kilowatt hours’ (kWh). By Ofgem’s calculations, the average units used for a typical household is 2,900 units of electricity and 12,000 units of gas each year.
Every three months, they work out what the unit price will be and what the average bill will be. The latest price cap announced is £2,074 for July to September 2023.
Have you lost the will to live yet? I know I have. Okay, so what this means is basic terms is:
The price cap (EPC) is lower that the Government’s price guarantee (EPG). So that means that Government help/subsidies will end and we should be charged no more that £2,074 on average for our energy (caveats apply) from July.
Should I switch to get a better energy deal?
It’s time to give the crystal ball a polish, because deciding if you want to switch and save involves a bit of science and a bit of guesswork.
First, a warning. Prices are still volatile and are confounding all the experts despite those predictions of dramatic falls. Take a pragmatic view about what you are willing to pay and if you aren’t sure, don’t sign up or commit to longer than a year.
So how does fixing work? After the desert years when switching deals all but evaporated due to the wholesale gas crisis, some of the energy suppliers are soon to be offering fixed rate deals to move to them. You’ll usually have to commit for a year or more though and there will be an ‘exit fee’ for bailing early if you are unhappy or prices come down dramatically. However, all the deals I can see are with existing suppliers at the moment to tempt you in to staying faithful.
Given that the current Ofgem price cap is £2,074 a year if you pay by direct debit, you should not be paying more than that on average till the end of September. So that’s a saving of 17% from the previous (Government) price guarantee of £2,500 already.
So any deal that crops up needs to be lower than the price cap to be beneficial. And we won’t know what the next price cap is for another three months. As I mentioned, most deals seem to be with your existing providers so ask them about cheaper tariffs. However, as July hits, it’s likely that completion might hot up a bit more if prices drop. That might make switching and fixing a lower price then. I’d be minded to wait till July at least to see the lay of the land then.
Remember the golden rules though:
- How long is the contract?
- How much are you saving by switching over the term of the contract?
- Exit fees. How much do you have to pay to get out of the contract early?
To be honest, most of the deals I’ve seen are only a little under the July price cap, so I’d say it’s not worth making a move just yet. Unless you really hate your energy firm, of course.
What if I can’t afford to fix my bill?
Of course, you might be tempted to switch because you can’t afford your current tariff. However, don’t forget that you have options if you are in financial difficulties.
If you are struggling financially, put together a basic budget covering the money you have coming in each month versus what you have to pay out. If you don’t have enough money to cover your outgoings – or you are left with little to cover you for emergencies – you meet the definition of financial difficulties.
According to Ofgem’s regulations, your energy provider should come up with a tailored plan to meet the needs of people experiencing temporary or long-term financial difficulties. You can read what businesses are supposed to do on Ofgem’s website here.
The regulator says that you can ask for the following:
- A review of your payments and debt repayments
- Payment breaks or reductions
- More time to pay
- Access to hardship funds
- Advice on how to use less energy
- The option to go on the Priority Services Register – a free support service for a wide range of people struggling or who need support.
If you feel that the business is not listening or helping – or they are making things worse – then you can take your complaint to the Energy Ombudsman for free. Make it clear to the business that you expect them to take no action against you while the matter is looked in to by the ombudsman.
Prepayment vouchers – a final warning!
If you are stuck on a prepayment meter, then there are still £30 million in vouchers to use which could get you a reduction of £400 on your bills. But hurry, hurry, hurry. The vouchers expire on 30 June and then they are gone forever. If you didn’t get yours, call the energy firm today!
Featured in Times Money Mentor – Martyn James