SSE has become the last of the big six energy companies to raise its prices – and the news isn’t good. Dual fuel prices will go up by 6.9% or £73 a year for the dual fuel bills of 2.8 million standard tariff customers from the end of April. While it’s not the worst out of the five suppliers who have declared a rise – that accolade goes to Npower – comparison sites have still condemned it as “hammer blow” for householders.
British Gas has frozen its prices, but only until August when it is expected to raise them, and experts say its standard tariff deal isn’t good value anyway. “The picture is grim – everyone on a standard tariff from the big six, including British Gas, is being ripped off,” says Martin Lewis, founder of MoneySavingExpert.com. Given this parlous state of affairs, what can be done?
Introduce a relative price cap
John Penrose, a former minister at the Cabinet Office and a Conservative MP, has called on the government to introduce a relative price cap, where the worst-value standard variable tariffs are no more than a certain percentage more expensive than the best-value fixed deals. “We still get lots of competition, lots of choice, but it does mean the most vulnerable of us or those of us with least time to switch suppliers don’t get ripped off,” said Penrose.
Penrose has secured a House of Commons debate on Thursday on energy bills. “In most things in life if you are a loyal customer you are valued and rewarded. But apparently for your energy bill, loyal customers in the view of big energy firms are there to be exploited and not rewarded – and that doesn’t seem fair,” he said.
Impose a price cap
After the Npower price rise, the shadow chancellor, John McDonnell, suggested he would cap price rises if he came to office, but Labour has yet to flesh out the details. The chancellor, Philip Hammond, used his budget to reiterate the government’s promise to intervene if markets failed people. Industry figures have said that, despite the tough talk, there is little appetite among ministers for a cap in the green paper out in April. There are also fears it would kill off competition.
“Tinkering with ideas like price caps as a magic bullet to bring down energy bills is a knee-jerk reaction that will leave consumers even more out of pocket in the long term,” said Richard Neudegg, head of regulation at uSwitch.com. Investment bank Jefferies has calculated that capping standard tariffs £50 below their current level would knock British Gas hard, denting profitability per customer from £50 to £35.
A cap, but just for vulnerable customers
Energy regulator Ofgem announced an energy price cap last month from 1 April for about 4m households on prepayment meters. Such coin- and token-operated meters are mostly used in rental properties and for customers who have fallen behind on their payments. Consumer group Citizens Advice is calling for that cap to be extended to people on the Warm Homes Discount, a scheme for those who find it difficult to pay their energy bills.
Switch more
This is the solution favoured by industry and, unsurprisingly, comparison sites. Moneysupermarket says the best value deals are £229 cheaper than the standard tariffs that many people are on. But even those cheaper, fixed deals are heading north: in March 2016 the site said the best fix was £751, which has jumped to £834 at present.
But the main problem with switching, as an investigation by the competition watchdog concluded last year, is that not enough people do it. Although the number of people switching rose by 30% last year, around two-thirds of billpayers are still on the worst-value standard tariffs. Trials are under way this year on how best to encourage those “hard to reach” people to switch.
Energy efficiency
The government abolished the green deal, its flagship scheme for bringing down household energy bills through insulation and more efficient boilers, shortly after coming to power in 2015. There are no signs that ministers have any plans to replace it this parliament. Energy efficiency advocates said the recent rises showed that switching was “little more than a short-term fix.” Julie Hirigoyen, chief executive at the UK Green Building Council, which is urging ministers to establish a new national energy efficiency programme, said: “Improving our draughty and poorly insulated housing stock should be an urgent national priority.”
More renewable energy – or less?
SSE blamed its hike on the increasing cost of government policy, much of which involves subsidies for renewable energy projects such as windfarms. A recent Lords committee report blamed such support for recent price rises. However, green energy payments only accounted for 10% of the rise in bills between 2003 and 2016. Most of the increase was due to rising wholesale electricity and gas prices.
Even the latest round of rises is primarily to do with fossil fuel prices, according to Ofgem. Figures published by the regulator last week show costs to energy suppliers have continued to increase since January, mainly due to wholesale prices going up. So there is also a school of thought that says extending the amount of electricity the UK gets from renewables – currently at 25% – would be the best way to protect billpayers from fluctuating wholesale prices.
Ditch smart meters
Under government plans, every home will have a smart meter by the end of 2020, doing away with the need for estimated bills. The cost of installing the meters was one of the reasons cited by ScottishPower for its 7.8% price hike. While no major figures or companies are currently calling for the end of 2020 deadline to be abolished or postponed, there is grumbling within the industry about the costs of the project – both for fitting them and maintaining the Capita-run body that will look after the data. Unions also complain that the companies are not training enough people or putting enough money into the upgraded programme.