Will Energy Bills Fall?
Published: 9 January 2012
By Julian Stone Leave a Comment
Updated: 13 January 2012
As wholesale energy prices drop and smaller energy suppliers cut their energy prices, will a price-cutting war mean energy bills actually start to fall?
After Ovo cut prices by 5% last week and Co-op Energy pledged reductions of 3% from February, consumers could soon benefit from a price-cutting war among the Big Six energy suppliers with bills falling by up to 10%.
That is a suggestion from independent price comparison website Energyhelpline.com and would mean the average annual dual fuel bill falling by as much as £135.
And as Tom Lyon, energy expert at uSwitch.com, says: “This is the kind of consumer-friendly move we’ve come to expect from Ovo.
“In one fell swoop it has given cash-strapped consumers a lending hand, become the second cheapest energy supplier on the market and laid the gauntlet down to the big six suppliers.
“The fact that the Co-op had cut its prices could be shrugged off, but now that Ovo has followed suit the big six will be feeling the pressure as all eyes will now be on them. ”
Energyhelpline.com director Mark Todd continued: “A reduction of any sort would be welcomed by millions of customers who have been fighting a losing battle against shrinking disposable incomes and a seemingly relentless rise in the cost of living.
“A fall in electricity and gas bills could happen before the winter is out but we also need to strike a note of caution as in the past falls in wholesale prices have not meant similar percentage drops for residential ones.”
Todd, who was one of the first energy analysts to predict rising prices last year, said: “Wholesale gas prices are down to 53p / therm for winter gas, 25p or 32% down on what they were in early September. The wholesale price makes up 47% of the cost of supplying gas to a home, according to OFGEM* meaning that a 32% wholesale price drop would cut the costs of supply of gas to a home by around 15%.
“At the same time, wholesale electricity prices are down by 27% from their summer peak. The wholesale price makes up 40% of the cost of supplying electricity to a home, according to OFGEM* meaning that a 27% wholesale price drop would cut the costs to supply gas by around 11%.
“Consequently gas price drops of up to 15% and electricity price drops of up to 11% do not look unaffordable to energy suppliers, though whether they will materialise is another question entirely.
“The history of energy price drops has often been that as the wholesale price falls other input costs are then stated to have risen, for example, green taxes. Other reasons for price cuts being slower and lower than expected are that not all the initial price rise was passed on in the first place or that the suppliers have already bought their gas at the old higher rates so price cuts are not thus possible.
“But, even with these possible issues taken into account, cuts of 5-10% in gas and electricity prices look affordable. Price cuts could start to be announced before winter is out. The Co-op managed a 3% cut before Christmas and Ovo have cut prices to new customers by around 5% so the Big Six could be planning to follow soon.
“However, our advice to customers wanting to cut their bills is to switch now rather than wait around for a price drop. Though price drops may come, waiting for one can be a rather slow and often disappointing process.”
According to uSwitch, based on a medium user consuming 3,300 kWh of electricity and 16,500 kWh of gas with bill sizes averaged across all regions, best buy energy deals are:
|Best buy energy deals:|
|First: Utility||iSave Dual Fuel V9||£1,030|
|Ovo Energy||New Energy Fixed||£1,061|
|npower||Go Fix 10||£1,078|
|ScottishPower||Online Energy Saver 17||£1,085|
|British Gas||Online Fixed||£1,150|
|EDF Energy||Price Protection 2013||£1,165|
MoneyHighStreet.com comments: “After a long period of rising energy prices it’s nice to see that we have some positive news with a drop in the price of at least some energy deals, with the prospect of other suppliers following suit.
“Perhaps it’s time too to change sloppy energy habits? With many of us needlessly wasting money by leaving electrical items such as TV’s, set top boxes and games consoles on standby, just by turning them off we can save money on our energy bills. It might seem a pain to do but it’s worth doing!