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Energy Prices To Increase By 50%

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Published in Household Bills on 11 June 2008

Gas suppliers pay more than double now than they paid for gas back in 2007, yet the price we pay has risen by perhaps just one third. Here's a tariff that'll lock in prices before the suppliers pass on their costs to us!

In July 2007, British Gas launched a unique product that tracks wholesale prices. ‘Wholesale prices' are the prices that suppliers pay for gas before they sell it on to us consumers. (What we consumers pay is called the ‘retail price'.)

With British Gas' tracker, every three months BG reviews the price it pays for gas and electricity. If the price has moved by more than 5% in either direction then it adjusts the amount that customers on the tariff pay accordingly. (Of course, this doesn't mean you pay the wholesale price. You do pay more, but your tariff goes up and down only as wholesale prices move.)

Since then, BG has increased prices twice: once in December by about 13% and once in March by about 5%.

And now, from 3 June it has increased prices a third time, by around 15%:

British Gas' wholesale-tracker tariff price increases, June ‘08

Energy

Payment by quarterly cheque

Payment by monthly direct debit

Gas

13.2%

14.6%

Electricity

15.3%

16.0%

Dual fuel

14.2%

15.4%

There are just 2,500 people on this tariff. However, we can expect that, once again, BG and all the other suppliers will increase their other tariffs over the next few weeks and months.

20% increase in prices this summer

In March, BG increased the price of its tracker tariff by just a small amount, so most energy suppliers didn't follow suit. However, it does mean that the total that energy prices need to rise this summer in order to catch up is now around 20%.

There is worse news to come

Big suppliers usually buy energy in bulk six to nine months in advance, so they pay future or ‘forward' prices. These prices are different from ‘spot' prices, which is the price they pay if they want more fuel today. But the price increases to British Gas' tracker still do not include the ‘forward' prices for this winter, which is when we usually see the biggest increases in both wholesale and retail prices.

If we look to forward prices going through winter 2008, we can see that the price of gas has more than doubled since July 2007. Yet we're paying perhaps just 30% more than we were last summer. Over the next year, then, we will see huge increases to the price that we pay.

Florian Ritzmann of Xelector, which powers our gas and electricity comparison tool, projects increases over the next two years. Ritzmann has accurately projected prices for me so far.

This time the expected scale of the increases has actually made fixed and capped tariffs attractive again. Ritzmann says that the best fixed tariff for most people will be npower's Price Fix 2011. Currently it's about 10% more expensive than a standard deal, but it's guaranteed for two-and-a-half years, which is the longest fix available. I've ran some comparisons and it looks good to me too.

Ritzmann believes that customers who sign up to this tariff will save 20% in 2009 and also that it will be 40% cheaper compared to the market in 2010. This means that prices will have gone up roughly 50% from today.

Sadly, Ritzmann says that this tariff will be withdrawn by 30 June at the latest. A replacement tariff will probably be 15% more expensive. I know what you're thinking, because I hate to be rushed into making decisions too. So set aside some time as soon as possible to do some proper thinking and research about what the best tariff is for you.

Read my thoughts on the BG wholesale-prices tracker in Avoid British Gas' Latest Tariff...It's all in the title really.

> Compare gas and electricity prices.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

sportcross 12 Jun 2008, 8:09am

I wanted to sign up for npower's cap only to find that it is available to their customers who use both electricity and gas. Is that discrimination - if living in an area where gas is not available?

TMFVertigo 12 Jun 2008, 10:32am

I've just been informed that Atlantic (part of the Scottish and Southern Group) today did the unusual step of withdrawing its cheapest tariff for new customers with immediate effect.

We can take this as a sign that the utilities companies are now under significant pressure to increase prices, and it is a question of who blinks first for prices to go up.

Right now really is the time to go capped.

Neil (the author)

hello12344585 12 Jun 2008, 8:48pm

I work for npower, it pays the bill i guess, but if you dont have mains gas then you can still go onto the capped prices as long as you pay by dd, hope this helps

Ginge08 13 Jun 2008, 6:54am

I'd be wary of joining npower, check out the report on BBC's Watchdog website dated 12 May
http://www.bbc.co.uk/consumer/tv_and_radio/watchdog/reports/homes/homes_20080512.shtml
not the first time this company has been featured on the programme

gregmct 13 Jun 2008, 7:12am

looking at the npower website it says the price is fixed till 31/12/2010 - that's not 2 1/2 years as you say - how do I get 2 1/2 years or if it is only 18 months as the website says are there better deals?

Rebtech 13 Jun 2008, 8:57am

gregmct: 31/12/2010 is 2 years beyond 31/12/2008, right? Then add six months. Even a Fool can make a fool of himself on the Internet.

TMFVertigo 13 Jun 2008, 8:59am

Hi gregmct

It is on npower's site, although I couldn't work out how to switch to it online trough npower. I don't like to sound like a salesperson (the writing team at The Fool is independent, hence why we always give just the best advice and we tell you what really are the best products out there), but you can switch easily through The Fool's site by running a quick energy comparison. Just scan the list for Price FIX 2011. Then you can decide whether it's worth it in relation to other tariffs too.

Neil (the author)

Rebtech 13 Jun 2008, 1:12pm

I just did a comparison and that npower capped deal is 45% more than I'm currently paying. I think I'll be sticking with that for now.

204panadil 13 Jun 2008, 4:52pm

Is the possibility of saving a few pounds worth the dreadful experience of having to deal with British Gas and N-power's customer service departments when something goes wrong with the switching or billing?

gillianswain 14 Jun 2008, 4:06am

While summer is here this might be the time to save for the winter by turning your gas off completely at the boiler. Most of us have microwaves and a fan heater and salad is healthy. Perhaps if we don't pay fuel companies anything for a while they can save their gas supplies and then give us cheaper prices (some hopes!). The rise in fuel prices are due to greedy suppliers knowing they can get away with it. The first big price rises were in the winter quarter and having found they can get away with it they will continue to do so now in the summer bills (world prices are man-made and also 31,000 American scientists has also signed a petition to say that "man-made" global warming is nonsense - the science doesn't equate - but its a great way of raising revenue). If fuel continues to rise it will be cheaper for us all to go abroad somewhere hot during the winter as the way prices are going our salaries won't meet the cost anyway (try asking for a 50% pay rise to match your fuel bill). The only way prices will come down is if we, the consummer, say "no thanks" to the fuel providers (by the way I own British Gas shares) - switch off your heating completely during the summer (an inconvenience I know but it may save you lots of money in the log run)!

gillianswain 14 Jun 2008, 4:17am

Sorry to add to my last message but I've just read an article about car sharing to save money on petrol - why not do the same with energy at home. Friends could take turns inviting each other to their houses on cold winters nights taking turns to limit the energy used in the empty house (you could turn it into a party). I know this may be impractical for some people, especially those with young children or the elderly but its worth thinking about - could be done Friday/Saturday and maybe the children could use it for a sleepover in each house. If we are being forced into pay huge any increases then maybe thinking out of the usual box might help.

tricky76 14 Jun 2008, 11:51am

Instead of keep changing suppliers all the time why not go for a gas supplier that promises to guarantee to be cheaper than Britsh Gas and an electric supplier that guarantees to be cheaper than your regional electric suppliers standard tarriffs ? Thats what I did when I changed over to Utility Warehouse from Telecom Plus!!! Read for yourself and make up your own mind at http://www.telcomplus.org.uk/bargainbills
Happy money saving !!!

Rebtech 15 Jun 2008, 6:31pm

gillianswain, that petition has no credibility. See, for instance, http://en.wikipedia.org/wiki/Oregon_Petition and http://www.realclimate.org/index.php/archives/2007/10/oregon-institute-of-science-and-malarkey/

Here's a quote: "The petition, despite being frequently cited by global warming critics as showing that thousands of scientists disagree with the consensus on global warming, contains almost no people with relevant expertise; and its vetting was so lax that it included fictional signatories such as Star Wars characters and a member of the Spice Girls."

helenang 23 Jun 2008, 6:38pm

Today 23rd June I tried to sign up to N Power fix 2011 but it was closed today. obviosly to good a deal for their customers.

EnergyGremlin 25 Jun 2008, 10:22pm

In reply to this post, it is never a good idea to turn the gas off to your boiler as this could cause irrevocable & expensive damage to the equipment. If heating is not required you should switch the boiler over to the hot water only setting (where applicable). Turning your house thermostat down to 18 degrees will also be far more beneficial and is an effective cost saving measure. One to two degrees reduction in temperature equates to a 10 percent reduction in gas consumption. All central heating systems should also be run through once a month to prevent system failure. Most heating engineers would recommend this. Ensuring your boiler & central heating are properly maintained (by a CORGI registered engineer) will also save money as will the correct level of insulation. Grants for this are available from all the major energy supply companies to cover either part or the whole cost of the loft/cavity wall insulation according to individual circumstances. Also check with your energy supplier to ensure you are on the best tariff and that you are receiving the dual fuel discount. Energy suppliers have to offer a variety of different tariffs, but will oftem not actively promote these to existing customers. Customer retention departments are the best people to speak to as it is their job to keep your custom. If however you really want to save money, fit a wood burning stove, an on-grid solar panel system, and if it gets a little cold, try wrapping up.

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