Lowering bills, cutting carbon
Sky high gas costs are driving the current energy crisis.
The energy market is currently going through a period of significant stress, so right now is not actually the best time to switch suppliers. Here we explain what’s causing the current energy crisis, and what you should be doing.
DON’T switch supplier unless you are prepared to pay much more (if you want to reduce your climate impacts, for example)
DO sign up to our newsletter to make sure you’re alerted when the situation changes (the price cap could be increased by as much as £600 in April)
DO prepare to pay more for your energy from March/April 2022 whatever happens.
Shortages of gas across Europe have seen wholesale energy prices increase on some UK markets by over 500% year on year. Because the UK is reliant upon gas to generate much of our electricity, this is affecting both gas and power prices.
As well as being very high, prices are also extremely volatile, with fluctuations of more than 10% within a single day.
In order to try to limit the impact of these rises on households, Ofgem has held its price cap at a level well below the price suppliers are buying the energy they sell to households.
For the first time since the market was privatised, the most sensible thing for households to do from a financial perspective is nothing:
As time goes by, more and more customers are coming off fixed price tariffs (where the supplier bought the energy they’re using in advance at a set price) and dropping onto standard variable tariffs held at the price cap (where the supplier is forced to sell the energy to households at a much lower rate than it can buy that energy).
This chart, published by So Energy last month, shows what has happened as wholesale costs have risen above the price cap. The longer the red line remains above the green, and the greater the difference between the two, the greater the losses sustained by suppliers.
If the supplier is still trading, the best advice is almost certainly to do nothing. As outlined above, the tariff you are on now is likely to be the best they can currently access, so they should make the most of it for as long as possible.
If the supplier has ceased trading, you’re protected by Ofgem’s ‘supplier of last resort’ process. This includes protection for credit balances, and ensures you won’t be cut off. You should make a note of current meter readings, and Ofgem will find an alternative supplier to take on the customers of the failed supplier. Once the transfer has been completed, you will need to look at the tariff offered by the new supplier. In most cases, this will be their standard variable rate, and is therefore held at the price cap, so the advice for now is do nothing.
Unfortunately, most household energy suppliers have now withdrawn completely from taking on new customers. In addition to the losses they are sustaining on their standard variable tariffs, the current price spikes make it very risky for them to bring new customers onto fixed price tariffs even if higher than the price cap: over- or under-buying in anticipation of a certain number of customers taking up a tariff carries huge costs for them.
A number of major price comparison sites have entirely shut down their energy offering, and we only have one supplier – Ecotricity – currently taking switches through us.
As long as we are still able to offer green tariffs, we will continue to do so.
In the longer term, the need for our services will be greater than ever. Current record wholesale prices will be reflected in the new price cap in April, at which time we will once again help homes across the UK switch to lower-cost, green tariffs.
The price cap is expected to rise from April 2022, while wholesale prices are expected to start to fall around the same time. That’s likely to mean that the best way to avoid eye watering bills is to switch away from standard variable tariffs. Stay up to date about when to do this and other green energy news, by signing up to our emails here.
