Don’t transfer suppliers, has been the advice on energy bills for the past year and a half. It contradicts everything we have been told for the past 20 years, when switching providers frequently was the only way to avoid overpaying.
Sky -Rising wholesale gas prices meant that providers like British Gas, Octopus, and Ovo could no longer offer attractive discounts to draw in new clients. Instead, the price cap meant that so-called standard tariffs, which everyone who hasn’t switched in the past year winds up on, were the cheapest ever.
And while it appeared that bills would never fall again, the question now is not whether they will fall, but how rapidly.
Since the collapse of the energy industry in the winter of 2021, Ovo introduced the first tariff priced below the Government’s limit last week. For the struggling British, what does this news mean? And is it ultimately time to consider a change?
Suppliers such as British Gas, E.ON, and EDF offered the finest deals to attract new customers. These had tiny profit margins, but after a year the tariff would change to a more expensive standard tariff. It is a common business model used by broadband providers and insurers: attract customers with a low price and hope they remain when prices increase. Most concur that it is unfair to loyal consumers. However, this meant that savvy Brits who were prepared to switch providers could obtain the most affordable gas and electricity rates.
What transpired to notify the situation?
That all altered at the beginning of winter 2021. Retail suppliers were forced to cease offering discounts to attract new customers due to the sixfold increase in wholesale prices that year as a result of the post-lockout surge in demand.
In a volatile market where prices could double in a week, it was too hazardous for providers to do so. 28 suppliers failed in a matter of months.
Putin’s invasion of Ukraine in 2022 increased market volatility. After the previous year’s surge in demand, a reduction in supply drove wholesale prices even higher.
Consumer experts like Martin Lewis and Citizens Advice advised families not to transfer providers in contrast to previous recommendations. That’s because standard tariffs, whose prices are governed by the energy price limit, were for the first time less expensive than any new deals being offered.
In October 2021, the limit was £1,277, the highest in ten years. The highest new offers were around £1,600, and the majority were around $2,000. These businesses, according to experts, were pricing themselves out of the market because they didn’t want to accept new consumers. After that, tariffs increased to just under £2,000 in April 2022 and £2,500 by October (although they would have been much more without the Government setting this limit).
What has changed recently?
Ovo introduced a tariff last week that is less expensive than the government’s limit on residential energy costs. It is exclusive to its current clients, but it is expected to grow and other suppliers to follow. Ovo is offering existing consumers a one-year fixed tariff of £2,275, undercutting the Government’s energy price guarantee (EPG).
Wait a minute… What is the EPG?
The EPG reduced energy bills below Ofgem’s price restriction. It is a temporary measure taken while wholesale prices are high. Simply put, it ensures that an average family will not pay more than £2,500 per year.
I’m perplexed. What is the Ofgem price differential?
The EPG replaced Ofgem’s price limit. Due to record-high wholesale costs, the limit set tariffs at £3,280 per year for typical users yesterday. For the previous three months, it reached a record-breaking $4,279 total.
The EPG protected consumers from these historic highs and kept bills at £2,500. Once the price cap falls below the EPG, expected to be around £2,000 in July, customers will pay the lowest.
What do the experts recommend we do?
Martin Lewis, the creator of the finance website Money Saving Expert, stated, “People need to be very cautious about jumping on a fix simply because it costs less than what they are currently paying.” If you are on a standard tariff, your rates are subject to a limit. The Energy Price Guarantee presently sets that limit, and it will remain relatively stable until the end of June.
‘After that, because wholesale rates – the rates energy companies pay – have decreased, the cap will probably decrease, and based on current projections, you’ll begin paying 20% less than you do now.’
He predicted that the price will “remain around that level” until the end of the year and into 2024.
