Putting customers at the heart of our energy market

@gmartin, thanks George. On the ball as usual.
In a moment of sheer frustration I did write to Which? pointing out the apparent false claim of £1.6bn overcharge. In a further moment of madness I also wrote to my MP, spelling out the logic that showed how this claim appeared to be totally unjustified.

I also questioned the apparent subsidy of fixed price tariffs by SVT customers. Part of the reply from Dept. for BEIS said:
“…. This means suppliers cannot charge customers who are on standard variable tariffs more to subsidise customers on fixed price deals. Instead, fixed price deals are generally cheaper than standard variable tariffs because they require customers to manage their energy accounts online, take their own meter readings and make monthly payments by direct debit….“.

I had pointed out that, at that time, the difference in price to an average user with any one energy company, between their SVT and fixed price tariff, was between £114 and £297 a year. Savings of up to 25% of the SVT price. As the quoted average admin cost of an energy supplier is under 16% it seems ludicrous to claim that the savings are due to the reasons given by BEIS.

In response to my further questioning of this an alternative explanation was given that it was down to fixed price energy deals being based on current prices, with SVTs on longer term purchasing arrangements. There is more reason behind this argument. However, since wholesale energy costs contribute only around 40% to your bill – say £450 for an average user, I find it hard to believe that a £297 reduction could be accounted for by that approach. That would suggest paying only one third of the cost for the raw energy compared to an SVT customer. Is that credible?

I’m quite prepared to be put right on my numbers if someone who is expert produces more information. But at present I’d like to suggest that information is looked at much more critically when it is being put in the public domain. I see no reason why Which? could not have queried Claire’s numbers. We don’t want political points being made that are unsubstantiated,

I’d like to see an Ofgem switching site with every tariff represented, paid for by a levy on all in the industry. Commercial switching sites can pick and cjhoose whose offers they display, so you won’t see the whole market by any means. Ofggem could advertise this as a service, internet or phone, and customers would know it was impartial (I hope).

We have spent enough money on promoting smart meters – not only of very dubious value to consumers but costing the country over £12bn. Pity, as John says, not to publicise switching. Although I doubt the energy companies would want to do this as it would take very profitable customers away from their SVTs.

I think an Ofgem information and switching site would be the ideal Malcolm. The number of current customers would be a useful piece of additional information for me because I am wary of dealing with tiny suppliers that can just go phut! and leave us in the dark. I have gone through all the first division players over the years and dislike most of them, and now that SSE is merging with NPower this puts me in a dificulty. I need to take a closer look at the second division now and possibly go back to The Cooperative Energy although they have slipped from favour lately.

At present, those who switch suppliers incur costs that are shared by all customers including those who do not switch. That means that those who are struggling to pay their bills or not mentally up to switching have to contribute to the costs. Perhaps those who do switch should be the ones that foot the bill.

I’d suggest a significant cost is when Which? takes a payment from the chosen energy supplier when you change supplier through Which?Switch. Most suppliers seem to be on its list. I’d prefer to see Ofgem offer this service and not introduce 3rd party beneficiaries into the scheme, at our expense.

I don’t see why any individual should be penalised financially when they choose to move from one energy supplier to any other. No more than they should if they decide to move insurer, bank account, emergency breakdown cover, credit card provider, broadband, phone contract……. I suspect apart from acting as a deterrent to exercising freedom of choice many people would be up in arms about being made to pay for simply avoiding being charged too much for a product.

I can see that you don’t want to pay for switching supplier but why should much of the costs of you (or me) switching be paid for by those who don’t switch? I’m glad to see some insurers being honest and including the cost of setting up a new policy in their quotations.

Why would it then be “dishonest” not to show the cost of setting up a new account?. Should everyone we deal with, where taking our details is a part of opening an account, have to show how much that costs? This is all part of general administration costs that all business incur. If we need to communicate with a supplier, or indeed any organisation, by phone, email or letter, that will incur a cost at their end to deal with it. Should the few who do so have to pay that cost individually?

I’d still prefer a commission not being paid to Which? when I do switch through them – or any other 3rd party. Would you support Ofgem performing this service instead?

I am keen on transparency and would like to see costs shown.

I do not understand why switching services charge can charge as much as £60 for their services, though Which? Switch charges between £15 and £45, though the reason for this wide range is not explained.

What I would like is energy pricing that is sufficiently simple that anyone can compare prices from different suppliers without needing to use a computer or phone service to do the job.

Using Which?Switch is simple and gives you all available offers in ascending order of cost (based on the estimated usage you input).

My approach is to use the service and then go to my chosen energy supplier, which arranges the transfer. I don’t want other people paying for me using a switching service.

Peter, unfortunately the cap, as far as I know, is only an example for the customer who uses the “average” amount of energy on a dual fuel tariff – 3100 units of electricity and 12000 of gas – an Ofgem “medium” user. I presume if you use more than that the cost will be pro rata based on the capped tariff unit charges.

The cap is to help protect those on expensive standard variable tariffs, Peter. These include many who don’t engage with the market including many who cannot cope with financial matters. It will not help those of us who keep an eye on prices and move to cheaper fixed tariffs.

I wonder what the critical mass in terms of customer numbers or quantities of energy supplied is for a viable energy company. If low tariffs are the chief appeal then the reduced income will not sustain the operating overheads and the margin on energy costs will become too tight if wholesale prices move upwards.

I think that’s why a lot of well ‘orf folk don’t ever switch.

But bigging up this issue helps our Government give the illusion that it actually gives a stuff about helping the poor and needy.

@gmartin, still no news George?

Thanks George.

I suppose preferential terms for having a smart meter is a logical step and not unexpected, but differential pricing according to demand patterns needs to be watched because some people’s needs and lifestyles do not give them much opportunity to adjust their activities to use energy when it is cheaper. For every period at a low rate there will almost certainly be longer periods at a high rate, and possibly even an excess rate for certain peak demand periods.

I can see the attraction of this from the supply perspective but it’s a further development of market segmentation whose implications need to be understood and analysed to see if it is fair. I feel that people who need to keep their homes heated more or less continuously should not be disadvantaged unless there is an offsetting tariff reduction during the low demand periods that will actually give them cheaper energy overall.

I hope that these issues will be monitored, but it can do no harm to make people more aware of their energy consumption.

The advantages of smart meters to the generators includes better control of use, and half hour domestic tariffs, as is common for commercial users, is one tool they can offer. High demand is more expensive in plant and fuel so it can be argued we should pay what it costs. Quite how most of us will choose, or be able, to take advantage of more complcated tariffs is open to question. Will we need some smart technology to help us? Switch on appliances when electricity is cheapest? Advise us when the best time is to cook?

I doubt many of us will see cheaper bills – peak use is peak for a reason.

On the subject of limited tariffs, I reported a couple of weeks ago that it seems comparison websites – certainly Which?Switch and Uswitch – are offered better tariffs than you can get direct from a chosen supplier. In my case very substantially less. This seems wrong.

I hope that when variable pricing becomes available we will be given advanced warning of when electricity will be cheaper so that we can decide when to use our washing machines etc.

There is no intention to have variable pricing for gas, which is the main cost for many consumers.

True, but a surprising number of people have no alternative to using electricity for heating, hot water and cooking. Most purpose built flats do not have gas supplies and many rural properties are too far from the gas grid so must use either electricity, oil or LPG.

I’m very well aware of that. The intention of variable pricing of electricity is to help achieve a more even load on the grid by providing an incentive to use power when it is cheaper. This has been done in a crude way for years with Economy 7/10. The fact that many properties use electric storage heating helps by maintaining demand overnight.

In the domestic sector only around 7% of properties use storage heaters, so their effect on overall demand is a factor, but not huge.

Apparently on demand tv has reduced the demand spikes, as people choose to watch popular peak-time programmes at times of their choosing.

I would not underestimate the role of storage heaters in helping to achieve an even load, since they consume a lot of power and also remove most of the need for heating during the day. Charging of electric cars overnight will also help balance the day/night load.

As we head for more “renewable” energy we will need to be careful with the mix. There is no solar energy at night and, as far as I am aware, wind energy is lower. One real renewable that is predictable is tidal energy. Time there was an urgent commitment to harness it.

Yes, and we have discussed this on numerous occasions. I’m trying to focus on how consumers can benefit from smart meters, which we have all contributed towards – even those who do not have them.

I don’t know the percentage of electrically heated properties that have storage radiators but large numbers of private flats, that are usually bought by investors and rented out, have electric convector heaters and will – of necessity – be on at peak demand times.

About 85% I think, John. 1.7m properties I believe have storage heaters. When the proposal to ban gas for domestic heating comes in that will become an awful lot more.

John – Private landlords already have to comply with rules and it does not seem unreasonable to require them to provide storage heaters for their tenants in properties dependent on electricity for heating. At present, smart meters do not facilitate variable charges for electricity depending on the time of day, but I think it’s about time we start to discuss the potential impacts for consumers.

I agree that it is reasonable for landlords to provide storage radiators in apartments that are dependent of electric heating, but in practice that does not happen.

Many flats built in the last decade or so are designed to much smaller volumes and the convector heaters are installed by the overall developer for economy and aesthetic reasons; the developers have no interest in the ongoing heating costs, they are just trying to capitalise on the desire for smart, sleek, modern-looking apartments that satisfy the investor market and present no financing problems.

Investors then buy them off plan and let them out without changing the heating [since they also have no particular interest in the tenants’ heating bills]. Changing to storage heating would incur significant costs for a new electrical installation, waste the convector units they had purchased with the flat, and possibly be technically difficult to achieve.

A small consolation is that the reduced room sizes and having kitchens integrated in the living spaces means a lower heating requirement.

What I am suggesting is legislation, John. If tenants are using convector or other heaters they are likely to be paying for electricity at the standard rate rather than the Economy 7/10 price, which is considerably cheaper. It’s expensive enough to live in rented property without being charged more to heat it because a developer or landlord has not considered the needs of those who will live there.

I was not in favour of the roll-out of smart meters but it looks as if most of us will have them within the next few years. It is too early to know the effect of variable pricing on consumers but I hope this will be managed better than the smart meter roll-out.

Here is an example of a smart tariff that offers electricity at three different prices depending on the time of day providing that you have a compatible smart meter and agree to your use to be monitored: https://bulb.co.uk/smart/?utm_source=google&utm_medium=cpc&utm_campaign=BL-generic&gclid=CjwKCAiA8qLvBRAbEiwAE_ZzPSsoy-H9kJN1izjRSvnWFFqD4CjjGCYDVAy1ugpWzZDF65q95KW_AhoCj-gQAvD_BwE&gclsrc=aw.ds

Unless Ofgem requires different companies to use the same times for overnight, off-peak and peak rates, it would be difficult to make useful comparisons between suppliers.

Wavechange – I would be in favour of legislation to ensure tenants are able to choose a more economical heating system. An uneconomical one should be reflected in the rent.

Not only that, Wavechange, the demand profiles will differ between seasons and according to weather conditions as well as weekends being different to weekdays.

Billing by the half hour opens up some intriguing possibilities to manage demand but enabling the customer to make use of the most favourable terms in a timely manner will prove difficult. In some households, some activities, like the washing, can be postponed for a day or two if it looks like the temperature will rise and lower the energy demand, but for things like heating you cannot time-shift the requirement – and even storage radiators have that inherent inefficiency which can be mitigated by vent control but not eliminated.

I understand that landlords must take action to improve insulation of older properties with a low EPC rating for the benefit of their tenants. That’s a requirement and not something that can be avoided by adjustment of the rent.

As far as I know (and I’m happy to be corrected) traditional night storage heaters require a time clock, two meters and a separate circuit. With a smart tariff I presume that there is no need for this and charges will relate to consumption during the specified time bands. It would be interesting to have some input from a professional electrician but I would be surprised if switching from convector heaters to night storage heaters would be an expensive job.

I agree that it could be difficult for some customers to take advantage of variable pricing but we might have an interim arrangement whereby customers can choose a fixed price tariff or a smart tariff.

I expect we will have a Convo dedicated to the topic soon.

If, and when, variable tariffs become available then storage heaters can be wired in to replace conventional electric heaters if they have controls that switch them on when electricity is cheapest. However, in cold weather they are unlikely to feed out adequately for the whole day so those with a convector heater built in will be best to deal with the evenings.
https://www.which.co.uk/reviews/home-heating-systems/article/home-heating-systems/storage-heaters.

Variable tariffs will make it more difficult to compare prices between suppliers. Maybe we’ll be able to get a report from a smart meter that can be used to more accurately predict our energy profile. Maybe the energy cost profile will not differ significantly between suppliers so estimates can still be made and comparable. The energy suppliers already buy in half hour chunks so will have the information they need on usage patterns.

The minimum Energy Performance Certificate standard for domestic private rented property is E. Whereas landlords are required to bring their lets up to that standard, so far as I am aware, they are not required to provide any heating appliances at all.

As Malcolm has said, a combination storage/convector type heater is probably the most suitable form of electric space heating and in many cases it should be possible to substitute these for simple convector heaters which would usually be on a separate ring circuit or circuits. This would only make sense financially, however, if there was a facility for charging and billing at a lower overnight rate, so replacing convector heaters with storage radiators without suitable metering would require a separately metered supply and control system as Wavechange has said.

The development of smart metering facilities to enable differential billing according to demand on the grid needs to go hand-in-hand with upgrading properties to more energy efficient methods avoiding the need for expensive alterations to the internal circuitry.

There is no point in even considering installing a gas heating and hot water system in properties that are currently all electric since the use of gas will have to be phased out as well.

I just can’t believe all this can be implemented within the timescales being proposed by some people, but if we don’t get started very soon the consequences could be extremely serious.