Sunday 19 October 2014

Energy switch

I have just started the process of switching my energy supplier again for gas and electricity. It should be a much quicker process now. Although nothing has happened for the last 2 weeks, because there is a 14 day cooling off period!


From the graph above you can see why I am switching. My current fixed price contract (annual cost shown in blue) was coming to an end and if I did nothing I would be moved onto the 'standard price' contract (in red) which would increase my bills by £251 a year (based on my actual consumption for the last year).

My current supplier is also offering a special deal. If I move to their 'Fix & Save 2' rate (in green) I will save £132 they say, but they mean I will make a saving compared to the standard rate, rather than my current rate. Actually it will still cost me £119 extra and I will be tied in for a year with a penalty for switching. Not really a saving after all then.

Although all the information I needed to work out the true cost was provided by my supplier, it would be easy to just assume that I was really going to save money and sign up. These energy companies can be tricky, although this is still an improvement. Previously you wouldn't realise the rate had increased until you had received a few higher bills.

MSE have a nifty tool The Cheap Energy Club that sends out alerts when there are cheaper energy deals that you can switch to. I have found it very easy to use. By comparing, I have switched to a deal called 'Blue' (er...in purple) that works out only £22 more than my existing rate, but I will get £30 cashback on top. My new deal is not the cheapest available, but it has given me a fixed rate for 2 years, with no penalty to leave it.

What are the chances that energy prices won't be rising over the next 2 years given that:
  1. There is a possibility of electricity shortages this winter, due to unplanned shutdowns on a couple of nuclear power stations and a few other unforeseen closures.
  2. Gas production in the UK is at it's lowest point, having peaked in 2000, and supplies only 50% of our gas consumption.
  3. Relations with Russia, the main gas supplier for Europe, are a touch frosty. Because we buy in a global market, any restrictions or price increases will affect wholesale prices throughout Europe, whether or not our gas is coming directly from Russia.
  4. Prices have been increasing by significantly more than inflation for the last 10 years.
  5. The current government has made no progress on tackling the huge profits that the energy companies make, though they have succeeded in significantly reducing the uptake of energy efficiency measures. Large scale take up of energy efficiency measures may lead to reduced demand, however high energy prices also reduce demand. The difference is that high prices hit the poor hardest and can lead to them being unable to afford to keep their homes warm, where as energy efficiency measures such as insulation means that keeping your home warm uses less energy and costs less.
For energy prices to remain stable over the next 2 years we would need very mild winters across Europe, an end to sanctions with Russia and no growth in demand for energy. Just looking at the last point, if the economy is growing, then energy consumption is increasing. This is because economic growth is about building more houses, expanding factory output, and increasing consumer spending on 'stuff' that is made with energy. No growth in energy consumption quite simply means no economic growth. That's not a popular suggestion (even less so than making up with Russia), hence why energy prices are almost guaranteed to rise over the next 2 years.

But wait......oil prices have been falling significantly, which signifies a drop in demand for oil. This could be one of the first indications that recession is starting to bite again (supported by the dive in share prices), so maybe no energy growth is a possibility?

Whatever happens, checking whether you can reduce your energy bills now, installing energy efficiency measures and taking advantage of subsidized or free solar panels will prepare you for the coming winter and help reduce costs.

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