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After months of sky-high energy bills, spring is upon us at last, so what is the outlook for our energy costs?
The good news from last month’s Budget is that the Energy Price Guarantee - the £2,500 cap on household energy bills - is being extended for a further three months. The hope is that when the subsidy ends in July, energy prices will have fallen substantially. But what next? Can we expect the same cost pressures next winter? And will we have the option to switch to cheaper tariffs with other suppliers?
Let’s recap why the prices have been so high over the last nine months. Firstly, COVID meant that people were spending more time at home, using energy at times they wouldn’t have previously and using their heating throughout the day over winter. Then, just as we were beginning to settle into this new normal, the war in Ukraine caused a huge spike in wholesale gas prices which broke our finely balanced energy market.
Although the war continues, actions taken by governments and gas suppliers globally have meant that wholesale prices across Europe have fallen. Hopefully, this will continue heading into next winter. Experts are currently predicting that the average energy bill could fall to as low as £2000 - 20 per cent lower than the same time last year when factoring in the UK Government’s Energy Price Guarantee.
Of course, our actual household energy bills are determined by how much we use. What will be interesting to see is how the price per unit of energy next winter will impact how much we each use. With such widespread media coverage on the costs of energy, we’ve seen a noticeable decrease with households using on average 15 per cent less energy per month over the past year compared to the twelve before. This is seen particularly in gas usage where we have seen households using less than in previous years, even when factoring in changes in temperature and cold snaps such as those in early December and March. While this has helped some of us save the pennies and cut down our carbon emissions, it’s put vulnerable people at risk.
So what can our energy companies be doing for us and those who are struggling the most? Flip back to 2019 when there were up to 64 different energy retailers each with variable and fixed tariffs available on the market. With comparison sites helping us choose the best deal, rates of switching energy providers reached a record one million switches in April alone but the crisis has brought the market to a standstill, except for those customers being transferred from failed suppliers.
With energy prices reducing over the next few months, we will start to see the market wake up and energy companies launching new rates to entice us to switch again. While many of us will be able to make the most of these new deals, vulnerable customers will likely continue to face hardship as they remain locked in with their current supplier due to the debt that has built up over this difficult period.
Another positive aspect last month’s budget is the removal of the pay as you go (PAYG) price premium. To date, those on prepayment meters have paid less for their energy than those paying in arrears, but more than those customers paying by direct debit. Ofgem has been tasked with working with suppliers to permanently abolish this premium through new policies. This should bring some much-needed relief to PAYG customers who tend to be disproportionately vulnerable or in fuel poverty compared to those who pay via different methods.
Spring is shaping up to be a big test for energy companies to support struggling households, keep current customers, and attract new ones. Despite the challenges we’ve faced through the crisis, one silver lining is that we’re far more engaged with our energy accounts than before. I for one have been logging into my energy account far more than in previous years to understand what’s going on with my payments. Let’s see whether suppliers will make the most of this newfound customer attention to deliver a better service that helps people get to grips with their energy use and how to save on their bills - advice that could make all the difference to those who are worse off.