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Update: will the proposed energy price cap be enough?

Energy prices

Prime Minister Theresa May has announced plans to tackle rip-off energy bills with an energy price cap. But will such a cap be enough to help you?

Update: 6 September 2018

Households on the most expensive energy tariffs could save around £120 per year when a new price cap comes into force this winter. But the cap doesn’t mean you’re protected from overpaying on gas and electricity – switching supplier will save you more.

Alex Neill, Which? managing director of home products and services, said:

“While this cap may bring a price cut for some, people shouldn’t think it will mean they’re automatically getting the cheapest deal on the market. There are still better deals on the market and energy companies must not use the cap as an excuse to delay helping the millions of customers stuck on rip-off standard variable tariffs to move. The price cap can only be a temporary fix and the Government, regulators and the big providers should now press ahead with reforms to create real competition, promote innovation and improve customer service”

Energy price cap

During her speech to Conservative Party Conference, Theresa May announced plans for an energy price cap. The Prime Minister said:

‘The energy market punishes loyalty with higher prices, and the most loyal customers are often those with lower incomes, the elderly, people with lower qualifications and people who rent their homes’

And announced that a draft Bill will be published next week that would give Ofgem powers to impose a cap on all standard variable tariffs.

The move puts an end to months of buck-passing between the government and Ofgem about how to tackle soaring household energy bills. And it looks like it could finally deliver on the government’s pledges made during the General Election.

There are millions of hard-pressed energy customers still suffering due to a lack of competition in the energy market. So any intervention that brings down energy bills will be welcome.

That said, in bringing forward this legislation, the government must ensure that any cap doesn’t result in higher bills overall, undermine improvements in service or bring much-needed innovation to a halt.

To ensure that any intervention that’s made by the government is actually a good outcome for bill payers, we believe that it should pass five key tests.

1. It must not cause longer-term price increases
If bill payers see price reductions overnight, but energy providers offset initial reductions with price increases over the long-term, the cap won’t have worked.

2. It must not remove incentives for providers to improve their service
Consumers have routinely suffered from poor customer service from many suppliers and have faced particular issues with inaccurate bills and poor complaint handling.

3. It must not stifle innovation
The government and the regulator must ensure that the cap does not stop consumer-friendly innovation in the energy market. They must ensure that the smart meter roll-out continues to be advanced in the most cost-effective way possible.

4. It must lead to a truly competitive energy market
Consumers have suffered as a result of a lack of competition in the energy market with the competition authorities estimating that people are collectively overpaying by £1.2bn as a result.

5. It must have clear criteria for bringing any cap to an end
The long-term objective must be for a competitive energy market that delivers for consumers. This means that any price cap should be time-limited. The government and the regulator must set out proposals for the length of the cap, how they will monitor its success, and the criteria by which it will be removed.

Fairer energy

Of course, the cap will not take effect this winter, which may be a disappointment to those who are already concerned about energy costs as we descend into the colder, darker months.

With a number of price hikes by a number of larger and smaller energy suppliers in recent months, energy prices are returning as a top financial concern for many. So the draft Bill must make the most of the opportunity to fix this broken market and deliver a fairer deal.

Now we await the publication of the draft Bill and the full details of the Prime Minister’s proposal.

Update: 11 October 2017

The energy regulator, Ofgem, will extend its current price cap for prepayment gas and electricity meter customers to cover an additional one million households this winter.

The plan will see energy bills cut by an average of £120 over the year for some of the UK’s most vulnerable households, according to the regulator.

The regulator has also said that it will begin consulting on extending the price cap for a further two million households for next winter, once the government’s price cap plans are confirmed. The Prime Minister announced last week that the government will prepare a draft bill to propose an energy price cap, this draft bill is expected tomorrow.

Our managing director of home and legal services, Alex Neill, said:

‘As temperatures dip, today’s announcement will be welcome news to some of the UK’s most vulnerable households. The implementation of a market-wide price cap is clearly going to take some time, so it’s right that the regulator is looking to more quickly protect the most vulnerable.

‘Energy companies must also do much more to engage their customers, helping them to switch to a better deal now. Only time will tell whether all of these interventions will really deliver better outcomes for consumers.’

We want to see a fairer energy market for all households. Every household, even those affected by the energy price cap, could get a better deal by switching. Our free Which? Switch service can help you compare gas and electricity prices and help you find the best deal for you.

Do you think a price cap will be the solution we need to fix the energy market? What else would you like the government to do?

Update: 12 October 2017

We’ve been campaigning for many years to highlight the broken energy market. Over 500,000 supporters supported our Fair Energy Prices campaign, urging energy companies and the regulator to do more to get customers off rip-off standard variable tariffs (SVTs).

So the news that the government has published a draft bill to introduce a price cap should be welcome. But it isn’t quite so straightforward.

Two-thirds of households in England, Scotland and Wales will become much better off overnight when the cap is introduced, giving relief to hard-pressed consumers. 14 million people on SVTs will save themselves hundreds of pounds a year.

But although the Draft Bill requires Ofgem, the energy regulator, to put the cap in place as soon as possible, consumers shouldn’t expect to benefit soon. The Draft Bill will have to go through pre-legislative scrutiny first before a bill goes through the normal legislative process and Ofgem consults on the measure. Then there will be another step of statutory consultation to change energy suppliers’ licensing conditions. It’s unlikely the cap will come into force until winter 2018/19, to remain in place until at least 2020.

Whilst a cap may sound like a positive move, we want the government to safeguard against any unintended consequences like higher prices, reduced competition in the market and poorer customer service. So it is promising that the Draft Bill outlines a temporary cap, and Ofgem will be tasked with making sure competition and consumer incentives to switch are preserved. But there is a long road to travel down before we know what the actual cap will look like.

Update: 13 February 2018

A report published by the Business, Energy and Industrial Strategy (BEIS) Committee has concluded that the government’s proposed energy price cap is necessary to address the UK’s broken energy market.

According to the Committee, the energy market has been dysfunctional for years. It highlighted that the regulator has failed to protect energy customers.

The report found that many energy suppliers are making substantial profits out of around 12 million ‘sticky’ customers who are on poor-value tariffs. The committee believes that an absolute price cap is the best way to tackle this overcharging for energy.

The introduction of a price cap should be a helping hand for millions who are paying over the odds for their energy. However, we’ve stressed that this price cap should not lead to any unintended consequences for consumers, such as poor customer service or higher prices overall.

While the Committee has called for the cap to be urgently introduced, it’s not expected to come into effect until next winter at the earliest. Our research found that you could save up to £305 per year by switching*, so if you think you could be overpaying for your energy then try Which? Switch to compare prices and see if you could get a better energy deal. Even once the price cap is in force, you will have to switch to get the best deals on the market

*A saving of £305 per year is possible by switching from the priciest Big Six standard tariff to the cheapest deal on the market. The figure is correct as of the 1 February 2018.

Comments

Which? news March 2nd:
Big Six energy company’s bills rise as temperatures freeze

I don’t know whether this headline is deliberately misleading, or just coincidental the way it is written. At first glance you might be forgiven for think it was all the “Big 6” increasing their prices. But it is not – just E-ON. Which is a “big 6 energy company”. Oh, and the article lists some smaller energy companies that are also increasing their prices, not part of the headline.

Read more: https://www.which.co.uk/news/2018/03/eon-energy-discounts-cut-as-temperatures-freeze/ – Which?

And they continue the deception by perpetuating the claim over price reductions ‘which could see us all collectively saving £1.4bn a year’. Which? planet are they on? If the energy companies have their income reduced by 1.4bn, how are they going to pay for the energy they need, to supply all their other customers who are on money saving deals?

@patrick @ldeitz, this £1.4bn “saving” has been commented on before as an illusion. Would Which? like to give a clear explanation as to how this figure they appear to support is arrived at?

Hi @malcolm-r, I believe this is a government figure that was calculated by the CMA. I can see if I can get some calculations for you though, the policy team should have the details.

@ldeitz, thanks Lauren. It is a figure that has been bandied about by the CMA, and repeated by Which? I am interested in how it is justified; I’d prefer Which? to look critically at information before simply repeating it and cannot see how energy companies that make a profit of £1032 million can then be accused of overcharging us by £1.4bn. This implies we expect them not only to make no profit, but to swallow a £368M loss. But i’m sure there is a simple accountancy explanation that I have missed, and I have sackcloth and ashes to hand.

Well, no-one seems to have come back and showed malcolm the error of his ways here.

I have asked Which? both here and through email to explain this, Derek, but they never have. It is, in my view, a quite erroneous suggestion – until it is proved otherwise – and if I am correct I am critical of Which? for not looking at this objectively and reaching a considered conclusion of their own. My worry then is that maybe they do not have the type of people who can do this, and that this might not just be in the energy sector. I have seen other examples of similar reporting and press releases and that concerns me, from what should be an objective consumers’ organisation. Lack of response also concerns me.

i think we’re seeing an emerging picture of Which? as a publishing services business, with charitable status on the basis of its “educational value”, but also with a liking for sensationalism, to sell more copies and garner more website hits.

Ofgem are issuing “The first in a series of working papers explaining how our thinking on the design of the default tariff cap is evolving as we gather views and evidence.
https://www.ofgem.gov.uk/system/files/docs/2018/03/working_paper_1_-_design_issues_-_for_publication.pdf

I hope Which? will be taking an active part in helping the design of default tariffs. Will they keep us informed as to what they will be submitting and maybe even consulting with their Members before deciding on proposals?

Now here’s a thought:
https://theenergyst.com/amazon-good-buyer-sse-npower/
Worrying to think of illegal energy coming via the market place – weak gas and electricity only suitable for 2-pin plug outlets.
Maybe everything could be routed through amazon? Why have lots of different people to have to pay for food, insurance, water, rent, ………..

I think your energy switch calculator/table is ver4y unrfeliable and inaccurate. I have tried to use it, but find it so inaccurate it is impossible. Firstly it gives rates that do not exist on fuel company websites, so how can i compare with something that does not exist.
Secondly if you compare the swiotch offers with the Best and worst energy companies table most switch providers are not good providers so why would Which recommend swithing to a bad provider.
Thirdly the companies I tried from both tables , bulb and octopus have terrible web sites that are difficult if not impossible to use. Bulb do not give access to any of their avaiable tariffs, so how do you know they are offering the best. Most companies offer what the want to sell which may not be the best for yo

Hi grumbler, sorry to hear that you’ve had problems using Which? Switch. I’ll share your feedback with the team, it would be useful to know how you found it unreliable and inaccurate.

Our satisfaction surveys help us to rank best and worst suppliers, this year’s results were based on a survey of almost 9,000 members of the public and carried out in September 2017. We look four core areas with our satisfaction survey (https://switch.which.co.uk/energy-suppliers/energy-companies-rated.html), that’s bill accuracy and clarity, dealing with complaints and value for money. I don’t believe the company websites are something we take into consideration when listing a supplier, but I’ll share your feedback with the team to see if this is something we can take into consideration going forward.

Read my comments I listed where it is inaccurate. Further more I have just had an email from Octopus which offers me £25 to sign with their deal but does not tell me what rate I will pay. This seems a con so how can Which rate them as a good provider

I think your energy switch calculator/table is ver4y unrfeliable and inaccurate. I have tried to use it, but find it so inaccurate it is impossible. Firstly it gives rates that do not exist on fuel company websites, so how can i compare with something that does not exist.
Secondly if you compare the swiotch offers with the Best and worst energy companies table most switch providers are not good providers so why would Which recommend swithing to a bad provider.
Thirdly the companies I tried from both tables , bulb and octopus have terrible web sites that are difficult if not impossible to use. Bulb do not give access to any of their avaiable tariffs, so how do you know they are offering the best. Most companies offer what the want to sell which may not be the best for yo

Bulb is a small company, relatively new to the market, that as yet seems free of the guile that requires a glitzy frontend. It only offers one tariff.

Bulb do not publishb their rates so how can customers compare. And why do they want to hide their rates?? Are they offering the worst possible??

Hi D Cutler, I replied to the ‘grumbler’ comment above – sorry to hear that you’ve had problems using Which? Switch. I’ll share your feedback with the team, it would be useful to know how you found it unreliable and inaccurate.

Our satisfaction surveys help us to rank best and worst suppliers, this year’s results were based on a survey of almost 9,000 members of the public and carried out in September 2017. We look four core areas with our satisfaction survey (https://switch.which.co.uk/energy-suppliers/energy-companies-rated.html), that’s bill accuracy and clarity, dealing with complaints and value for money. I don’t believe the company websites are something we take into consideration when listing a supplier, but I’ll share your feedback with the team to see if this is something we can take into consideration going forward.

Please do stick to one username on Which? Conversation – if you have difficulty logging in or changing your details then let us know. Thanks!

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Bulb is a silly website when it says “Your energy will cost only £92 a month” when all you put in is whether you have a house or flat, and how many bedrooms. This “quote” (guess) was for a 4 bedroom house. It takes no account of your actual usage. Below a large “ Switch now (takes just 2 minutes)” is a much smaller “See tariff details”. This is what you need to read, and work out your annual estimate from past energy use. Actually, the tariff seems quite good, but it is variable.

I’d go to Which? Switch. It does seem to give reliable results. You put in last year’s spend in £ or usage in kWh and get proper quotes based on one of those.

“Why is Scottish Power raising its energy prices? Increases in wholesale gas and electricity costs, plus costs to upgrade meters and low-carbon electricity costs are among the reasons for the price increase, Scottish Power said.”
………………
“Which? Managing Director of Home Products and Services, Alex Neill, said: ‘This price hike is a kick in the teeth for hard-pressed energy customers, who sadly won’t be surprised at another ​big price rise from another big energy company.​”

Read more: https://www.which.co.uk/news/2018/04/scottish-power-raises-energy-prices/ – Which?

@pmoorey, It shouldn’t be difficult for Which? to look at changes in wholesale energy prices, smart meter costs and the government’s add-on costs to see whether the current round of price rises have any justification. Perhaps they would do this and let us know the outcome?

If there’s a price freeze coming soon, doesn’t that make it obvious that retailers would want to raise prices as much as possible before it kicks in?

Any sensible business would mitigate potential loss of profits – just as happened when a price fix was proposed a few years ago. The real answer, I think, is to abandon fixed price (subsidised) tariffs and use the savings there to reduce the standard tariffs. Why should we not be prepared to pay for energy based upon what it costs? We do with virtually everything else – car fuel, rail fares, food, rent……

I am concerned about the CMA’s (Competition and Market Authority’s) view on what tariffs should be shown on PCWs (Price comparison websites). They have asked Ofgem to amend their “Confidence Code” to allow PCWs to only show certain energy tariffs – primarily those that they receive a commission on for switching. Originally Ofgem were, I believe, in favour of showing all the market whether commission was involved or not.

CMA’s logic seems to be that eliminating those who don’t pay will make PCWs more competitive and more likely to advertise to consumers the advantages of switching because they will receive a payment.

I’m sure their logic is right for PCWs, but not for consumers. Commission costs money, and presumably, eventually all energy suppliers will agree to pay commission to ensure they are seen, and to how many PCWs? That commission will be paid by the consumer (all of us) in the end.

I suggest this can go ahead, and let commercial entities provide a service of a kind. But seeking the best energy deal is far too important to most of us to restrict who we can see. I suggest that Ofgem establish an independent price comparison website where every current tariff from every company is held and can be searched by any consumer to find the best one for them.

I hope the PCW fronted by Which? (Which?Switch) does not fall prey to the CMA’s proposal and displays all tariffs, commission or not, as it does now (or so I believe).

Part of the references is here:
https://assets.publishing.service.gov.uk/media/57f370fbe5274a0eba000025/cma-response-to-ofgem-confidence-code-review-consultation.pdf

“In our Final Report11, (/i> (the CMA’s)we highlighted that the inability of PCWs to display exclusively those tariffs which they are paid commission for risked undermining their incentive to invest in the domestic retail energy market and their ability to exert competitive pressure on energy suppliers’ prices. We considered that the requirement to list all tariffs in the market could significantly weaken the bargaining position of PCWs vis-à-vis energy suppliers since the latter are guaranteed to be listed whether or not they pay commission. We considered that this would have two detrimental effects for energy customers. First, PCWs would be unable to use their purchasing power to exert downward pressure on the prices of energy suppliers (as set out in paragraph 10). Second, energy suppliers may choose not to pay commissions, knowing that their tariffs would still be shown on PCWs, undermining the income streams of PCWs and, thereby their incentives to invest in advertising energy switching to customers. As a result, fewer energy customers will be made aware of their ability to shop around and switch energy suppliers, and fewer will benefit from the lower prices they can achieve by doing so.

@pmoorey, Pete, I hope I’ve summarised this correctly. Did Which? become involved in this decision and will they keep their own PCW totally comprehensive and display all tariffs, regardless of commission?

@pmoorey, will Which? be attending this?
Ofgem is consulting on how to protect consumers on standard variable and default tariffs. To discuss the issues that we’re consulting on, join us at our workshops.
Ofgem’s Retail Price Regulation team will outline the main proposals of the Default Tariff Cap consultation. You’ll have an opportunity for debate and discuss our consultation throughout the day as we seek your feedback into our 2018 Default Tariff Cap consultation.
Ofgem’s Default Tariff Cap Industry Workshop
London – 12 June 2018, 10:00-16:00″

Hi Malcolm 🙂 Just to let you know that Pete is no longer here. He left a couple of weeks ago. I will see who this falls to now and get back to you!

@awhittle, thanks Alex.

Hi Malcolm! I spoke to the campaigns team and they said that we will be responding to the consultation.

@awhittle, thanks again Alex. 🙂

We where sent a letter from British Gas to say Prices were going up sign letter or pay top price, both were more than we were paying, Pluss we always pay our bills pronto, even though we are pensioners

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Has anybody noticed the elephant in the room. The main reason that energy prices are higher than they ought to be is climate change policies. . According to the Government’s own figures (Sched 5 DECC report November 2014) electricity prices could rise by 29% (compared with 2014) by 2020.

These policies have no basis in science. From April 1998 temperatures (as measured by satellite) have gone down from 0.74C above normal to 0.21C above normal as at the end of June 2018. In the same period CO2 has risen by 11%.

Although a price cap is laudable the main effect will be to transfer costs to business and we will all end up paying (indirectly) for an unsound policy

Noel Harrison says:
6 July 2018

More than £100 million was paid out to energy firms that own wind farms last year to switch off their turbines and stop producing electricity, according to new research. According to analysis of official figures, the wind farms generate an average of 40% more funds when their turbines are turned off than when they are running. The energy providers are nothing more than HM Government Tax Collectors. The subject of renewable energy in the UK requires an in-depth and independent investigation. The public are unfairly adding to the bottom line of the utility moguls.

Generators are brought into use, or removed from use, dependent upon demand, as we don’t have decent storage for surplus energy.. Payments are made accordingly, so the cheapest energy is produced, i believe. There is some information here: http://www.ref.org.uk/energy-data/notes-on-wind-farm-constraint-payments

Scotland is the greatest beneficiary..

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https://mancunion.com/blog/2018/01/25/uk-wind-farm-constraint-payments-scandal/
“The National Grid pays all renewable and non-renewable energy generators ‘constraint payments’ to alter their production, so as to avoid the blackouts that both over- and under-supply would cause. The gas industry (which supplies the UK with 42 per cent of its electricity) was paid almost twice as much as the wind industry in 2017.

The majority of the UK’s main wind farms are in Scotland, an area that has high energy output but relatively low energy demand. However, large quantities of energy are unable to be stored, and the grid connections between Scotland and England are not adequate to take on the excess energy from Scotland. Larger wind farms are part of the energy sector’s Balancing Mechanism, a system used by the National Grid to balance these differing levels of supply and demand. As demand fluctuates throughout the day, the supply must continually match it every second.

In order for this system to work, the National Grid takes bids from energy firms to alter the amount of energy they supply. For conventional energy firms that use fossil fuels, it is cheaper to pay the National Grid to produce less energy than it would be to continue to use up their supply of fossil fuels. However, renewable energy has no fuel costs and therefore would not benefit from such a system.

Instead, wind farms and renewable energy firms propose positive bids to the National Grid, they tell the National Grid that they will turn off their wind farms if they are paid a certain amount per megawatt hour. These payments are known as constraint payments, which have been widely criticised.”

This is a financially wasteful system. Perhaps when unpredictable renewable energy generators are being granted licences, they should be contingent upon being linked to energy storage systems. Scotland could surely use elevated water storage/hydrogeneration to soak up excess wind farm capacity. It would be good if we had a national plan (beyond the scope of politicians, however), but not nationalisation.

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Elevated water was meant to describe using surplus energy to pump water up to storage for later hydro electric generation. Last year the contribution made to electricity generation by the many Scottish hydro electric schemes was reported as 0.8 to 2%.

Much of England is fairly low-lying and not suitable for pumped storage systems where off-peak low-cost energy [e.g. from wind farms] can be used to raise large volumes of water to an elevated reservoir [on top of a mountain] so that it can be released via a turbine race to generate electricity at peak demand times. I have it on good authority that this will not work in most of Norfolk.

Traditional hydro-electricity generation was just harnessing an existing waterfall or using a dam to retain a volume of water that could then be released through a turbine and ultimately lost. Pumped storage re-uses the water by pushing it back up again to the upper level during the off-peak period. I seem to recall it started at Dinorwig in north Wales in the 1970’s. The purpose of this system is to meet short-term demand peaks and to provide some cover for intermittency in supply such as from renewable energy. There is a need for both conventional hydro-electric power and pumped-storage power. The remoteness of both of these forms of generation, however, means that long transmission systems are required to bring the energy to the places of high demand.

I had in mind Scotland, because it produces the greatest surplus wind farm energy with high subsidies, and it has equally high topography.

One problem with the placing of their wind farms is the lack of adequate transmission lines to places where their electricity would be most needed. So as well as funding water storage and hydroelectric schemes, I’d add contributing to upgrading the distribution system as part of a condition for operating a lucrative wind farm. After all, anyone else who produces something normally has to take account of how they will get it to market, and how they deal with a glut.

Has Norfolk been partially spoilt with offshore wind farms?

I referenced England in response to Duncan’s comment.

The companies developing giant off-shore wind farms are having to invest heavily in transmission systems and converter stations to connect to the electricity grid. These are sizeable installations which are having to be heavily screened to minimise environmental intrusion. The companies are generally having to cut trenches for around twenty miles inland in which to bury the cables and they have put forward wide ‘corridors’ [with alternatives] for public consultation.

I don’t think Norfolk has been adversely affected by the appearance of the early off-shore wind turbines that are visible from the coast – they are actually an attractive feature. The big ‘shoals’ or ‘arrays’, with hundreds of enormous turbines, will be sited many miles off the Norfolk and Lincolnshire coasts and will probably be invisible from land. At least the off-shore developments have taken the pressure off installing inland turbines which have nearly always been controversial. The large-scale solar panel farms are not attractive and seem to be an exploitation of attractive countryside. The fact that sheep graze amongst the panel frames does little to enhance their appearance or help them blend into the landscape.

@gmartin – George, Energy Tariffs. A couple of years ago the CMA recommended that Price Comparison Sites need no longer show a comprehensive list of all suppliers. Since then, Ofgem have been consulting to reach a decision. I can see no reference to Which? having taken part in these discussions but hope that they have. Have they?

Ofgem have now published their decision https://www.ofgem.gov.uk/system/files/docs/2018/07/decision_letter_-_confidence_code_wom_-_16_july.pdf
I don’t have time to study it in detail but it seems to confirm that PCWs can be selective about the providers they offer, but they should all be able to be switched to through the particular PCW. The aim is to make it east to switch rather than provide a large number of possible tariffs. Is this correct?

It would be helpful if Which? could provide a summary of the proposals.

It would also be helpful if Which? would confirm whether their comparison website shows all tariffs available and will continue to so do.

Ofgem refers to CACT – Citizens Advice Comparison Tool – which should compare a much wider range of suppliers. I’d never heard of this. Has anyone used it? I always refer to Which?Switch in the belief it will give me a total picture.

Today Ofgem have published an update on their plans for the energy cap. See:
https://www.ofgem.gov.uk/system/files/docs/2018/07/2018.07.20_open_letter_-_update_on_retail_price_protection.pdf

It says “By the end of October, we intend to issue the final licence conditions, the final notice of baseline values and the final Impact Assessment. We will also announce the initial level of the cap for implementation by the end of 2018, when the licence comes into effect.

Which? appear to be completely clueless on almost all matters relating to energy. They happily say nothing about the energy policies that are driving prices up, and then prattle on and on about a “broken market”, ignoring that there’s around 100 suppliers to choose from, no restrictions on switching, and ample information. They demand greater competition and then support a radical intervention of a price cap. Apparently, if you don’t switch supplier, that’s a problem that needs fixing (almost like insisting that if people shop at Waitrose rather than Aldi, they need regulation to hold down Waitrose prices). Which recommend suppliers who offer loss making tariffs. They don’t object to Ofgem’s stupid, stupid rules that impose the costs of failed suppliers on other suppliers (and their customers) who were more prudent. They haven’t stood up and pointed out that the £11bn+ smart meter programme is a complete waste of money, imposed upon the industry by government. After years of onerous and increasing regulation by Ofgem, Which seem to think that even more regulation is a way of creating more competition. Even now, Which are silent on the ongoing disaster of energy policy that is going to keep pushing energy bills higher for example through the misbegotten nuclear programme, and all the further idiotic ideas, like Ofgem’s foolhardy interconnector plans. Which happily make recommendations on solar panels, ignoring that for years the subsidies simply enabled wealthy middle class people to reduce their energy costs at the expense of those without the money or opportunity to do so.

A message to Which. If you can’t see what is and will continue to drive energy prices much higher, you’re not doing the job I pay you for. And your endless carping about the energy suppliers disguises the real root of the problem, which is government energy policy.

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The IFA2 interconnector is a 1GW high voltage direct current (HVDC) link developed by UK’s National Grid IFA2 Ltd and France’s RTE, planned to be commissioned in 2020.

The HVDC cable system comprises approximately 25km route length in France, running from Tourbe converter station in Northern France to the landing point close to Caen. The subsea route is just over 200km across the English Channel and will land at the south coast of the UK at Solent Airport near Fareham where the UK converter station is to be located. In addition to the HVDC cable link, a high voltage alternating current (HVAC) link will connect the converter station to a local substation in Chilling, UK, which includes 2km land sections at each end with a 5 km subsea section between them.

https://www.offshorewind.biz/2017/12/13/new-uk-france-interconnection-project-moves-forward/

I liked your comment, Albericht. We need you to become a regular contributor so why not join in other conversations? If you register it will be easy for you to find your comments again in the future.

The interconnector is nothing new – there have been several for many years – although it seems like it will be the longest.

The interconnectors are useful for transferring surplus power from one place to another. They were originally intended for short term-use to cope with emergencies but are now used in the more variable conditions of renewable energy to balance demand and supply and it works both ways. The EU can huff and puff but so long as one country has a surplus and another a shortfall it will be useful to trade electricity and the price will fluctuate accordingly. We are facing an energy deficit until new capacity comes on stream so it will make economic sense for the continental countries to sell us some of theirs.

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Why continue to invest in a new interconnector if it is not going to be used?

Ofgem today:
Ofgem has updated the level of the safeguard tariff, which protects 5 million households from being overcharged, based on the latest estimated costs of supplying energy.
From October 1, the level of the safeguard tariff will rise by £47 per year for dual fuel customers to £1,136.
The rise is due to higher wholesale gas and electricity costs since the level was last updated in February. This is mostly due to the global rise in oil prices feeding through to wholesale gas prices which impacts both domestic heating and electricity generation.

Which? today:
Alex Neill, Which? Managing Director of Home Products and Services, said:

“This is bad news for the most vulnerable consumers, particularly given the safeguard tariff was already far from the cheapest deal on the market. It demonstrates why energy companies should be doing much more to get all their customers off expensive tariffs.

I suggest two better ways of dealing with this. One is to persuade people (yet more publicity?) to use a comparison site to switch to cheaper tariffs. Second, is to abolish fixed price fixed term tariffs that are subsidised by those on standard variable tariffs. We would then mostly all be on a lower-cost variable tariff that changes with world prices – just as has happened here.

I am not keen to get rid of cheap fixed tariffs in the hope of the cheaper standard variable rate tariffs. It could result in many people paying higher prices. What is needed is for the SVT prices to be reduced to the same as a company’s current fixed rate, but that might not happen immediately.

Many like to choose a fixed rate and forget about it until the period (in my case two years) has expired.

Are you happy that a fixed rate tariff is subsidised by more expensive SVTs? I happily admit to using fixed rate tariffs. We should pay for what energy costs. If people genuinely struggle through lack of money to heat and cook then the taxpayer, through the state, should help them.

It is those who find it difficult to switch who suffer, and stay on standard tariffs. Looking at a couple of major suppliers, the difference between their standard variable tariff and a fixed price one vary from 21% more to 32% more. Such differences are huge and cannot be explained by cost saving – not in any way. Same electricity, same gas, same supplier. Subsidised by the sticky customers, the vulnerable, the ones who need most help. It is wrong.

No I am not. Please read my post again. That’s why I suggested that current SVT prices are reduced to match the current fixed rate price.

The point I made was that while we have fixed rate tariffs they keep, in many cases, svt’s high to recover profitability – calculations I have done lead me to no other explanation. So by not getting rid of them the difference is being perpetuated.

SVTs cannot be reduced to the fixed rate tariffs because that would severely reduce or negate the companies margins. A 21% to 32% difference in tariff cost could not possibly be absorbed with current profits.

Energy companies will continue with the fairly modest profit they currently make, with competition from around 60 dual fuel suppliers keeping the large companies to around 4.8% margin before tax (latest Ofgem average figure) .

So abandoning any subsidies on fixed price tariffs would enable the SVTs to be reduced to still maintain the current margin. Competition will see to that, i’d suggest.

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All that’s needed is to have set both SVT and fixed tariffs at the same price. If you fix your price for a year then you could win or lose depending on various factors. We are all entitled to make suggestions.

When fixed price tariffs were introduced I presume this was the intention – to allow you to know what your units costs would be for 1, 2 or 3 years (but not your bill, of course, because that depends upon consumption)

But I think the gap between them became silly. It may be a way the big companies, who forward buy energy to protect against price changes, saw to compete with small companies who bought at current spot prices and couldn’t afford the cost of forward buying ( with some falling by the wayside when this business plan failed them). But they couldn’t afford it if everyone took up these “low” tariffs.

For example, on an average standard tariff for dual fuel of £1172, the margin is 4.8% on average for the large companies. That’s £56. The difference between the SVT and a fixed price offering I gave above is around £230. You couldn’t possibly expect “What is needed is for the SVT prices to be reduced to the same as a company’s current fixed rate” when it is sold effectively at a £170 loss – or so the figures imply.

I do not disagree with having an SVT and an alternative fixed price tariff that is realistically priced, so they would be much closer together. This would give people “peace of mind” for a year or two knowing their unit rates would not change. But svt’s can go down as well as up; I wonder who is better at predicting the future energy cost, us or a major energy company?

It’s fairly obvious that if SVT prices fall then those taking out a new fixed contract would have to pay more.

Of course SVTs can vary and with my suggestion, you would have the choice of an SVT or a contract, much in the same way that you can choose a PAYG or annual SIM-only contract for the phone.

I’m interested in the possibility of helping the poor and if you genuinely wish to do that we could scrap the present system and have simple unit pricing for energy.

Simple unit pricing has been explored before and in my view is not viable when their are elements in the bill that are not dependent upon consumption. Only 43% of a typical bill is actual energy cost. However, there is no perfect single system that suits everyone, so the present wide choice of tariffs allows all users, low, medium, high, electricity only, to choose the one that suits them best.

I agree that a SVT and a fixed price contract could run, providing one is not subsidised by the other, as happens now, to the detriment of those on SVTs. I’m not really sure what the point would be though as you will still pay for the energy you use. Why not simply pay based on what it costs – as we do with car fuel. With a contract phone you may well not use all you pay for.

Equally I could say that what you have proposed has been considered before. I still hope we will have energy prices based on unit cost because at present high users subsidise low users thanks to the standing charge that bears no relation to actual fixed costs.

Bringing SVT and contract prices into line would at least prevent exploitation of those who are not very good at keeping an eye on what energy costs. Allowing contracts enables consumers to be sure of what their energy will cost in the next year or two, irrespective of whether prices go up or down. When visiting a supermarket there are a wide range of brands to choose from and many of us buy products when they are cheaper. I realise that I have 10 jars of acceptable instant coffee in stock plus four bags of real stuff thanks to recent offers. Of course the price could fall further and on a couple of occasions I have made the wrong choice.

Unless we introduce more regulation we are stuck with making best use of what the companies offer us. It is quite clear that regulation is needed to get rid of the large difference in price between SVT and contract prices.

It is quite clear that regulation is needed to get rid of the large difference in price between SVT and contract prices.“. Yes
high users subsidise low users” No. There is a wide range of tariffs available, with different and zero standing charges, I have proposed a standing charge based on true fixed costs.

The tariffs with low or zero standing charges have high unit charges, so really benefit those who are very low users such as those with second homes and empty houses where use is minimal.

Perhaps we can leave this with what we agree on.

The higher units charges on zero standing charge tariffs help recover the fixed costs that consumers’ incur, and that others choose to pay through a daily standing charge.

I assure you that zero standing charge tariffs can cost users more because the higher unit charge, and that hurts the poor. (I’m not referring to the vulnerable.)

“I still hope we will have energy prices based on unit cost because at present high users subsidise low users thanks to the standing charge that bears no relation to actual fixed costs.”

If users do actually shop around, they ought to end up on a tariff that reduces their bills.

If all users migrate to their individual net lowest costs, then they’ll sign up for a selection of different standing charges and unit prices.

If my energy consumption is E, then I’ll want to move from tariff 1, with standing charge S1 and unit price P1, to tariff 2, with S2 and P2 instead if:

S2 + E*P2 < S1 + E*P1.

i.e. because may saving ought to be

(S1 – S2) + E*(P1 – P2)

If both S2 < S1 and P2 < P1, then I'll obviously be wanting to change tariffs. Otherwise I'll need to explore the balance from their contributions.

If I'm not good at arithmetic, a good price comparison website, like Switch with Which?, should do all these sums for me.

It is choosing the correct tariff for your energy usage. If a zero standing charge tariff is unsuitable then choose a different one. Plenty to choose from. The standing charge issue is really irrelevant if you have a reasonable estimate of your annual usage of gas and electricity. Using a price comparison site will give you a list of total estimated costs; it us surely what you spend in total that matters.

I’m quite capable of playing with numbers and making comparisons but it is well recognised that many are disengaged with the energy market even if they can cope in the supermarket.

wavechange, I think we all agree that some folk won’t shop around for low energy prices and some others can’t shop around for low energy prices.

I’ve been a bit like this with my house and car insurance recently – the amount of money that I could potentially save has never justified the bother of regularly shopping around.

I am only concerned about those who struggle to cope, Derek. Maybe if energy was sold in supermarkets it could help encourage more people to take action.

Wavechange, we could identify those struggling to cope and help them.

But why expect anyone else to do that if they don’t want to?

I’m not sure if we can. Many people are eligible for benefits yet don’t claim them. This has been well studied. It’s usually the poor that suffer. It has taken many years to stop the energy companies charging those with prepayment meters extra. In a world where many are living in debt it’s hard that many are exploited by higher prices for energy, an essential service

Quite, DerekP. We expect to shop around for home and car insurance, food, domestic appliances, broadband, phone contracts and suchlike so should we not have to bother for energy – one of our major expenditures? It has never been easier, there is plenty of publicity, and the rewards are, at present, worthwhile for those who have never switched.

I would hazard a guess we would be far more critical if there were not the opportunity to easily switch, and not plenty of choices of supplier, a choice made very straightforward online and by phone. All you do is put basic details into a price comparison site and all the calculations are done for you, presenting a list of suppliers in ascending order of cost, Could you make it any simpler?

Well, I could make it simpler because I don’t really see the point of fixed price tariffs (if they were properly priced to return the same profits as SVTs). That would reduce the vast number of tariffs on offer.

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Hopefully we’ll be out of the EU by the end of next Winter so we could probably get by on existing contracts without needing to import any American gas. In principle it is prudent to diversify supplies of critical commodities even if there is a price disadvantage.