Lower Domestic Energy Prices

Lower Domestic Energy Prices

After years of steep price rises the outlook for domestic energy prices in the UK as of March 2014 has become a good deal brighter. It’s not impossible that prices may even fall a little in the medium term, but failing that, the likelihood is that there will be no further rises in domestic energy prices for some time. The only fly in the ointment is the crisis in Ukraine which caused a sudden spike in wholesale gas prices at the beginning of March 2014. But if Russia confines its military actions to the Crimea and stays out of the rest of the Ukraine the chances are the crisis will settle down to an uncomfortable stand off and domestic energy prices will be unaffected. Only the worst scenarios of a full scale shooting or economic war will have any significant effect on domestic energy prices in the UK. The reasons for this good news are several fold and most of them are likely to have lasting effect.

 Fracking in the USA

energy prices

Fracking for gas

Whatever the environmental pros and cons of gas fracking there’s no doubt that it it’s had a dramatic effect on domestic energy prices in the United States. Gas prices in the US are a third of what they are in Europe.. Although there has been no direct effect in the UK and Europe to date, global market prices for gas must be affecting the prospects for wholesale gas contracts as they come up for renewal. One of the issues in the UK which causes a time lag between global price changes and their effect on domestic energy prices is the interval which occurs before any price changes work their way into what the domestic supply companies pay for the gas they buy. And it’s the gas price which is critical to domestic energy prices. Most of the UK’s electricity is produced at gas fired power stations. The UK generators negotiate gas contracts with suppliers are many are soon coming up for renewal. And there’s no doubt that the prices they will be able to negotiate will be significantly lower than they have been able to achieve in recent years..And competition and the regulatory regime which indirectly governs domestic energy prices in the UK is bound to result in most of those savings being passed onto consumers in the form of lower domestic energy prices than might otherwise have been expected.

Changes to the Green Levy

But other influences are also at work. Towards the end of 2013, and with important elections due in May 2014 and a General Election due in May 2015 the United Kingdom Government finally started running scared of the potential wrath of voters, particularly elderly voters who vote in large numbers and who are starting to feel; severely hard pressed by high domestic energy prices. So the government has made changes to the way in which it collects the money it requires for its energy saving initiatives. Until recently the costs were placed squarely upon energy bills. But owing to the effect of this levy on what would in any case be high domestic energy high prices the government has had a change of direction.

In moves unwelcome to environmentalists the Government has retreated on parts of the so called ‘Green Levy’, in the hope of cutting domestic energy prices. The ECO scheme which forced energy companies to give free insulation to low income families is to be reformed. The scheme costs around £1.3 billion a year and adds around £50 to domestic energy prices. From now on it is to be funded by the government through the tax system. Most unwelcome to environmentalists however are the accompanying plans to slow down impositions placed upon the energy companies to meet key energy efficiency targets. This means that the energy companies will not have to install so much cavity wall and loft insulation in homes. The effect will bear down on domestic energy prices as the energy companies’ costs will be reduced. And there’s every likelihood that these government initiated saving will be passed on to the customers in the form of lower domestic energy prices because this time the government will be watching carefully .Ofgem is making threatening noises about a competition enquiry.

Stable Domestic Energy Prices to come

The Big Six Electricity Suppliers have all to varying degrees already made a commitment to hold domestic energy prices to their present levels until the spring of 2015. Scottish and Southern Energy (SSE) has already cut its prices on Dual Fuel Tariffs by 3.5% as of March 2014 and has frozen its prices for as far forward as 2016. It doesn’t rule out price cuts during that period. SSE is a bigger player than you might think. It trades as SWALEC in Wales and supplies much of Southern England, with 10 million customers in all. SSE has abandoned three off shore wind farms projects. This all means that between the end of 2013 and the Spring of 2015, there will have been no rises at all and there’s every chance that the suppliers will all follow the SSE lead and freeze prices into 2016.  And by then lower wholesale contract prices will be in the offing which should limit domestic energy price rises to much lower levels than we have been used to. One red herring in the brew however is a promise by the Labour Party that if they win the General Election they will freeze domestic energy prices for 20 months. It’s not clear however what effect such a promise would actually have. On one hand there might have been no rises in domestic energy prices during that period anyway. SSE has already announced its price freeze for 8 of those 20 months,  and there is the obvious further difficulty that the companies may nip in, in advance of any freeze and put prices up to cover themselves. Later on they might put prices up immediately after the freeze ends. So Labour’s plans might actually result in higher domestic energy prices as companies take precautions to cover themselves in advance of a twenty month freeze.  Consumers can’t expect much in the way of any long term relief on domestic energy prices from political intervention.

Much the best way to obtain real saving without waiting for politicians to have any effect on domestic energy prices is to increase domestic energy efficiency in the home and to check out the prices offered by different suppliers from time to time, switching suppliers as appropriate. Changes in the way tariffs are marketed are already in the pipeline. The government has agreed with the energy suppliers that the time has come to simplify the bewildering array of tariffs available and to restrict each supplier to just four. Having said that domestic energy price comparisons will still be still difficult between suppliers whose tariffs will differ and whose timing of price changes will not coincide with one another. If however customers use the website USwitch regularly to see how their domestic energy prices compare with what’s on offer significant savings amounting to hundreds of pounds a year are available by keeping to the best value supplier at any given time. It’s well worth the effort, and once customers have used the website once or twice it requires little or no effort to check out the tariffs every couple of months. But often the worst affected by high domestic energy prices are the elderly and vulnerable. And these groups are the least likely to have internet access. So friends and family, can do a great service to vulnerable persons simply by checking prices for them, from time to time. People who have never switched stand to make the biggest savings.

USwitch

energy prices

More Saving Still

And the second string the cost savings bow is energy efficiency in the home. Domestic consumers should use low energy light bulbs install LED lighting wherever possible and take advantage of any free offers and grants available to install insulation. Substantial costs savings are available just by turning a thermostat down one degree and most homes can easily tolerate a larger cut.

But the most recent issue affecting domestic energy prices is the large difference in what the energy companies charge their Direct Debit Customers as opposed to customers who pay when the bill arrives. Worst affected are customers who pay with pre payment meters. Paradoxically people who pay in advance pay the highest domestic energy prices. Wherever possible you should pay by Direct Debit to obtain the biggest savings. But some people on tight budgets find it difficult to manage like that and feel it unfair that even when they pay their bills on time or even early, they still pay more than Direct Debit consumers who are sometimes effectively in arrears. The energy companies say that the reason for these discrepancies are down to cost. They say that it costs more to administer quarterly bill payments than it does Direct Debits. That may well be true but  the differences cannot possibly be as high as the companies claim. And the difference varies widely between different companies with a small number of small suppliers having no difference at all. The companies also say that quarterly bill payers are more likely to default. That also may well be true but there’s no good reason why people who pay their bills should pay for those who don’t. That’s a problem for the suppliers. There is something in the argument that pre payment meters cost more to run than credit meters but the difference is much less than it used to be. Modern card meters are more reliable than old slot meters and the likelihood is that the costs are not as great as the companies claim. The suspicion is that the companies know that their Direct Debit customers are the most sophisticated and most likely to switch and take advantage of their other customers who don’t. In fact Direct Debit customers are usually the highest users and are most valuable to the companies, so they make a point of retaining them. Whereas Pre Payment Meter customers are often stuck because they are sometimes charged large amounts to have their meter changed to one which would give cheaper gas and electricity. One way round this is to change your supplier to EDF if you have a Pre Payment Meter. EDF domestic energy prices are usually competitive for Pre Payment Meter customers in any event. But the company will change the meters to a billing meter for no charge, and when the change has taken place customers are free to shop around for the best deal possible Also EDF does not run the credit checks that some companies insist upon and charge for when a customer wants to move to a standard credit meter.

But at the beginning of March 2014 a more likely explanation for lower Direct Debit customers paying lower domestic energy prices emerged. It was revealed hat the energy companies have been sitting on £400 million pounds of overpayments that people have forgotten to reclaim after they have moved or changed suppliers. The companies have said that they have difficulty contacting the customers. What difficulty there is in contacting someone who has just changed supplier is not clear. They will still be living at the same address. And the remainder who have moved will nearly always still have the same bank account, so the suppliers can just send the money back to the bank account they have been taking the Direct Debits from. That’s what they would do anyway if a customer claimed. So Direct Debit customers provide an occasional bonus for the supplier when people overpay.

 

BT Customers Save £24 a year with Direct Debit but energy customers save much moreenergy prices

Lower Domestic Energy Prices

So with very little effort most households can look forward to lower domestic energy prices, or at the very least stable ones. Domestic energy prices have stopped rising, savings are usually available by reducing consumption and most of us can save by regularly checking that we’re with the cheapest supplier