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Your Money > Household Bills Articles > We ve had...
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By Richard Evans
Horrified motorists who have watched the price of fuel soar will need no reminding that record oil prices have another sting in the tail: when the price of crude oil rises, so too does the cost of the natural gas we use to heat our homes and generate electricity. The only consolation is that summer is coming. Lack of demand tends to keep the price of gas down, and of course we won't be using the central heating much. But some experts think the reprieve will be temporary; the energy markets are signalling that prices are likely to remain high - possibly for years. So how likely is it that our gas and electricity bills will soar when the colder weather arrives - and what can we do about it? "It gets more certain every day that prices are going to jump - perhaps by 40 per cent," says Mark Todd of Energyhelpline, the price comparison service. "All the suppliers confirm that prices are likely to go up this summer and I think severe increases are very, very likely. What's unusual about this year is that gas prices are going up in the summer; normally they go down." The "spot" price - the cost of gas for immediate delivery - has risen by 22 per cent recently, he adds. "Meanwhile, the cost of gas for delivery in the winter is twice last year's price - and prices for the following two winters are high too. This is also very unusual." Energy companies buy a mixture of spot and forward gas, he explains, so predicting the effect on our bills is not an exact science. "But my best guess is that we will see two rises totalling 40 per cent for a family's typical spend on energy," says Mr Todd. "The first rise of perhaps 10-20 per cent could come between July and September, followed by another of 20 to 30 per cent between January and March next year." Gas would go up by more than electricity, reckons Mr Todd. "The total rise in the gas price will be 50 per cent, I expect, while electricity could go up by 30 per cent across the two increases." On the basis of the market's future pricing of gas, he thinks energy prices will remain high for one to two years. "We've had the credit crunch - now we're in for an energy crunch. Some people don't realise how big their energy bills are - the average now is £1,050 a year. If prices rise as we expect, your annual bill could be £1,600 by March. Not many people have that kind of spare cash." The good news, says Mr Todd, is that we can protect ourselves from these punishing price increases by switching to a fixed or capped tariff. "There are some great-value caps and fixes around. You could end up paying no more than you are now on a variable deal - a good fixed tariff should let you cap your bills at £1,000-£1,100," he says. "People who work in the industry are all switching to fixes. My advice is: get one right now. Capped or fixed prices will go up within weeks." Others are more cautious, however. "Prices will go up, but I don't think anyone can truly say by how much - or when," says Scott Byrom of moneysupermarket.com, another switching service. "There are even signs of a price war breaking out in the variable tariff market, with npower cutting its price recently. I wouldn't be surprised if British Gas followed suit. And no supplier wants to be the first to raise prices - that way they get all the bad press." So if you just want the best price available today, says Mr Byrom, an online variable-rate tariff is the way to go. Online tariffs are almost always the cheapest as there are no paper bills and you pay by direct debit. But if your finances couldn't cope with bigger bills, switching to a fixed or capped tariff now is a good idea, he reckons. "If you need the reassurance of prices that are guaranteed not to rise, a tariff fixed for two or three years is a good bet - although for a fix to save you money overall, prices would need to go up by 20 per cent." If you pick a good online variable rate now, he says, you can always switch to a fix later, as there are generally no restrictions on moving from non-fixes after 28 days. "But if you come off a fixed rate before it expires, there is often a penalty - British Gas charges a £75 termination fee," says Mr Byrom. Asked to name some good fixed-rate offers, both experts point to npower's Fixed Price 2011, which expires in January of that year. "It's more expensive than other caps but lasts much longer," says Mr Todd - and there is no penalty for leaving early. "E.On's Price Protection 2009, on the other hand, is cheap but short, as it expires in October next year." Not all suppliers offer these tariffs at the moment and they tend to be duel-fuel only. If you do want to find a new energy deal, a price comparison site is usually the best way, says Georgina Walsh of Energywatch, the consumer watchdog. "Use one that has our seal of approval," she adds. You can see the list of Energywatch-accredited sites by clicking here. Switching normally takes about six weeks and there is no interruption to supply, although you should take your own meter reading on the day of the changeover. "We will almost certainly see double-digit increases in energy prices before the end of the year," adds Ms Walsh. "Every 10 per cent rise puts 400,000 people into energy poverty. For them and other consumers pushed to the brink by the credit crisis, these increases could be catastrophic." Customers who face difficulty paying their bills should contact their suppliers straight away, as they may be able to help. A tighter energy market could encourage suppliers to make their terms and conditions more restrictive, says Ms Walsh, so check the small print carefully before you sign up to a new tariff. "And we may see more doorstep sellers. If you are on the receiving end of their sales pitch, don't sign anything there and then, just ask them to leave a leaflet. You also have 14 days to change your mind." Switching to a better tariff isn't the only way to cut your energy bills - you can also reduce your consumption. The Energy Saving Trust offers simple tips to help you use less energy, as well as an online calculator that works out how much money you could save by taking steps such as insulating your loft or switching to low-energy light bulbs. Useful links: |
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