Five reasons energy bills will go up imminently
"The market trend and rumour mill" is pointing to higher prices in summer, according to energyhelpline, and perhaps half a million customers will be coming off their energy tariffs just in time to be hit by those higher prices.%VIRTUAL-SkimlinksPromo%
According to energyhelpline there are five signs that are leading many to conclude that price rises are inevitable. They make a compelling case:
1. Industry signals and conversations
energyhelpline watches the gas and electricity suppliers' media and trading statements "like a hawk" for signals in price moves. Matt Ridout from the firm told me: "There have been a number of signals in trading statements since New Year scarily reminiscent of last year when a similar pattern preceded the 5%-10% price rises in late summer/autumn".
He specified British Gas as one example.
2. The longest ever winter
January and February were colder than normal, and March was the coldest for 60 years. Ridout said: "As we were still getting conditions below freezing well into April, this winter has been described by some as the longest winter in history."
Ridout predicted my next thought: that colder winters should be good news for energy companies. Indeed, gas usage spiked in March and over the winter it was 15-20% higher than normal and so sales were up.
"For some energy companies this may be good news," said Ridout, "but for many they had to buy in lots of extra gas at very high prices to serve customers when the market was at its peak."
Suppliers tend to make the bulk of their profits in winter, but some suppliers told energyhelpine that March wiped out most of their winter profits.
3. Transmission & distribution costs
The costs of the "pipes and wires" keep on rising. National Grid, which runs these connections, bills the energy suppliers, and our suppliers pass the cost on to us. National Grid has just reported mega profits for shareholders, up 13% per share.
Ultimately, we're going to have to pay for those profits.
4. Environmental costs
These keep on rising too, says Ridout.
"The money to subsidise wind farms, free insulation and solar panels has to come from somewhere. Unfortunately it's a levy on suppliers that ends up in your bill. One newspaper article calculated these costs could be as high as £600 per home per year by 2020."
5. Wholesale costs
The price at which energy companies buy energy to sell on to us was high over the winter and the forward prices for next winter also remain high.
18 tariffs expiring this summer
Alan Clarke of Scotiabank has estimated that some of the above will cause energy bills to rise by £100-£200. The greatest shock might come to those who have become accustomed to fixed rates, or who shopped around for cheaper deals a while back but fail to do so again. From paying some of the lowest prices available, you might now face paying your supplier's hefty default rates, which are going to be even more expensive if the "inevitable" happens.
EDF's Blue +Price Promise, expiring in September 2013 particularly stands out in my mind, since that was one of the energy tariffs available to new customers last summer that was cheaper than even the cheapest variable tariff in some areas. Indeed, several fixed tariffs last summer were very cheap.
Ridout believes the largest batch of customers will be leaving EDF's tariffs. He estimates between 300,000 and 500,000 households will see their tariffs expire in summer.
You can see the list of tariffs expiring soon in the table below. Most of these are just one or two years old. If you've been on the same tariff for even longer, it's very unusual for you to still be getting a good deal.
What to do now
The cheapest tariffs that are still available to new customers tend not to rise in price at the same time as older or standard tariffs. That's why the typical guidance you read on money websites – wait until all energy companies' price announcements have been made before switching – doesn't make any sense. Those announcements only refer to the more expensive tariffs.
So you don't have to wait for the long months it takes all suppliers to roll out their price increases if your tariff is expiring this summer.
The good news is that if you switch this summer and later your supplier says it's increasing the price of your tariff, you're normally allowed to leave without exit penalty, even if your tariff comes with penalties for leaving in a specified time period. You have to notify your supplier and begin your switch quickly though. Energy tariffs to avoid.
Cheap tariffs include new small supplier Flow Energy's Thames Fixed Online Sept 2014, which is not only fixed but is currently the cheapest tariff for many customers. So far it's too early to know how good Flow Energy's customer service is.
The other fixed deals I've seen close to the top of the table all last around one year to 18 months, and they are between 5% and 10% more expensive than the cheapest deal. In recent years, my research has found that such a price difference has been too high to justify a fix, even if prices rise more, because you start paying higher prices sooner with the fixed deals. However, the future might be different and, for you with your specific energy usage and postcode, the price difference with some fixes might be smaller when you do your own online price comparison.
To see which tariffs are available in your area, use the Lovemoney gas and electricity comparison tool.
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