Recently GB energy collapsed, and it was a big warning sign that you need to always be vigilant when looking for a good deal on your gas and electricity.
Ofgem, the regulator, underlined the possible savings in a table showing what 20 million customers with 11 of the major energy suppliers pay on their default variable tariff and the amount they could save by jumping to the best deal available to them. Energy helpline, the well known comparison site for energy companies, has put this figure at £3.7 billion per annum.
Joe Malinowski, of The Energy Shop, a comparison website for the price of your energy deals, says that GB Energy got into problems for the reason that it, and some other “challenger” energy companies, built a business model that relied on a steadily increased stream of income to balance out the losses that their cheap deals sustained. If the growth stopped, the whole business model could cease to function. As he forecast in Times Money two months ago: “There is a real risk that a small company engaging in ultra-cheap pricing could go bust.”
He fears that it could happen again. “The question is not if others follow, but rather how many,” Mr Malinowski says.
Ofgem says there are measures in place to find alternative suppliers if any energy company goes out of business, so customers will always have a supply, but being forced to switch can be a hassle and could leave you out of pocket when your guaranteed tariff runs out.
Mr Malinowski says challenger energy companies have done a good job by increasing competition in the industry and shouldn’t all be tarred with the same brush. When switching to a smaller supplier you need to understand the risks. Those companies launching without capital as a financial buffer are vulnerable and Mr Malinowski says customers should be wary of suppliers that take advance payments.
The case for switching
Ofgem’s table shows how much money we are losing out on by failing to switch supplier. The 6.3 million people on British Gas’s standard variable tariffs — 74 per cent of its customers — could save £129 a year if they moved to the company’s cheapest tariff. If they searched the whole energy market, they would find their standard tariff is about £174 more expensive than the average cheapest tariffs from the ten cheapest suppliers. A similar pattern emerges for the other big six suppliers. The3.8 million people on standard tariffs at SSE (91 per cent of its customers) would be £98 better off a year if they moved to its cheapest deal. They are also paying about £198 more than the average of the cheapest tariffs from the ten cheapest suppliers.
The biggest saving comes with npower, where standard tariff customers are paying about £200 a year more than they would if they moved to their own company’s cheapest deal.
Edward Molyneux, the head of research for TheBigDeal, a collective switching site, says: “A shocking 19 million households are being taken for a ride by the Big Six by staying on their standard tariffs. If they switched, they could save an average of about £196 a year. SSE is the worst offender, followed by British Gas and E.ON. The other three members of the Big Six have at least half their customers on standard tariffs.”
The best deals
The cheapest dual-fuel tariff, according to The Energy Shop, is So Gopher’s 12-month fix, which would cost a typical medium energy user £870. In second place, at £871, is Avro Energy’s Simple and Chill deal, which is fixed for 12 months. Co-operative Energy takes the third slot, with its Co-op Online February 2018 fix costing £877, followed by PFP Energy’s Together deal, running until December 2017 and costing £881. Completing the top five is Octopus Energy’s 12-month fix at £898.
All these best buys are from challenger energy companies, which might make some consumers nervous. Mr Malinowski says some of these companies are solidly financed. “We would suggest considering smaller suppliers that are either profitable and well-capitalised or have access to significant funding, such as Extra Energy, First Utility and Bristol Energy. Many of the larger suppliers offer competitive tariffs, so before switching to a new entrant make sure the additional savings are worth the risk,” he says.
Best of the big guns
For those nervous about taking the plunge, Mr Malinowski selects a couple of good deals from the Big Six. He picks out npower’s Online Price Fix January 2018, which costs an average user £945 a year. He also suggests Scottish Power’s Online Fixed Saver December 2017 v2, costing £952, and EDF Energy’s Blue+ Price Protection January 2018, which costs £967.
Changing energy suppliers is always a bit of a hassle, but just look how much you could be saving a year. It’s definitely worth it! Have you found a particularly good energy deal? Get in touch!