Many customers have started to receive updated tariff rates from their suppliers, and things aren’t looking pretty. Here at Severn Wye, the figures we’re seeing through the letterbox are telling us a few important things you should bear in mind over the next month.
Ofgem’s price cap is only an AVERAGE
Back in February we told you about the price cap rise and gave you some estimated figures for how this might look in a variety of different domestic settings (have a look at the tables in our myth-busting price cap article for more info). Now that we’re seeing ‘real life’ tariffs from suppliers, it’s become very clear that this price cap is just an average. In other words, what Ofgem thought you might be expecting to pay. What we’re really seeing are prices higher than the price cap, and in some cases significantly higher. It’s also important to remember that if you’ve been on a fixed term deal until now, you’ll see the biggest increase in your energy bills after April 1st. This is because your previous tariff was below the level of the price cap. Essentially, you’ll feel the difference between your old tariff and the new rate disproportionately because the gap is bigger. The 54% increase estimated by Ofgem is only an accurate estimate of increase if you were already paying top rates.
Here’s an interesting comparison put together by one of our team, using the regional price cap and Ofgem’s average consumption data for the Midlands, as a comparison with average prices under the previous price cap.
This graph highlights both the dramatic increase in overall energy costs, with direct debit customers likely to pay somewhere in the region of £189 a month, and a huge £203 a month for people paying quarterly. It also highlights the significant disparity between different methods of payment (something we’ll explore below).
How you pay will make a difference to your bill
Another factor that will have a significant bearing on how much you pay for your energy after April is the method of payment you use. We’ve previously touched on how being a prepayment meter customer will affect your bill, but this also applies to whether or not you pay using direct debit. It’s worth considering the pros and cons of paying by direct debit. The obvious positive is that you’ll pay less overall if you set up a standing monthly payment, as it’s a kind of guarantee to the supplier that you’ll pay your bill. However, this relies on you absolutely knowing that the money you need to pay will be in your account on the date it’s due to go out. In uncertain times like this, it’s increasingly difficult to guarantee the state of your bank account from month to month, so make sure you choose the method of payment that’s right for your circumstances.
Below is an example using the unit and standing charges for the South West region, across direct debit, quarterly payments and prepayment meters.
Does where you live make a difference to your bill? The short answer is yes!
You might assume that between what supplier you’re with, the type of energy you use and how you pay for your energy, there’s enough variation to cover all eventualities. If only it were that simple! There are various ways in which where you live can also be a factor in determining whether your tariff is above the average or not. For customers that live in Herefordshire, current fuel poverty statistics show that the West Midlands as a whole has the highest proportion of households living in fuel poverty in the UK, at 17.8%. Herefordshire itself also follows this trend, with 16.5% of households in the region affected (as opposed to 13.4% nationally). In real terms, this means that many people in the county will find themselves unable to keep up with higher payments, compared with other regions of the UK.
For customers that live in Gloucestershire and South Gloucestershire, current fuel poverty statistics show that the South West is high-cost area for fuel. In real terms, this means you could see higher tariffs coming through from your supplier than friends and family who have similar usage, but live in a different region.
Not only this, the South West also has the highest average fuel gap in the UK. The average fuel gap is the reduction that would be needed to the energy bill of a fuel poor household for them to no longer be classed as fuel poor. Essentially, if you’re living in fuel poverty in the South West, you’ve got the furthest climb in financial terms to come out of fuel poverty.
Whilst living in fuel poverty won’t impact on the tariff set by a supplier, it will impact significantly on a household’s ability to pay their energy bill. Recent research carried out by the Office for National Statistics has already shown us that households on lower incomes will be disproportionately affected by rising energy costs, so it’s a particularly worrying time for people already finding it difficult to pay their rising bills.
Standing charges are rising too
Alongside the price per unit increase, most customers will also see an increase in the amount they pay for their standing charge. The standing charge is the daily charge you’ll pay for energy, regardless of whether you use any. Millions of customers are seeing significant increases in the amount suppliers are charging, with some reporting 80% increases on their previous tariff.
One way of looking at the standing charge is to think of it as an admin fee. When you join a new gym or change the details on your car insurance, you’ll usually pay a fee that’s meant to cover the cost of opening or changing your account. This is the role of the standing charge for energy suppliers. It covers the use and maintenance of the energy network (for example wiring), carrying out meter readings and keeping you connected to the network. If you have a dual fuel bill, you’ll pay a standing charge on both your gas and electric.
Many customers will question why this charge is going up, when it’s the price of energy that’s increasing, not the way energy is delivered. There isn’t a specific price cap for standing charges: Ofgem set the overall cap, then it’s up to suppliers how they split this between unit price and standing charges. Many suppliers will argue that the costs of maintaining the network are increasing, however there’s one big elephant in the room when it comes to these increases. A large proportion of this price rise will be going to the supplier of last resort fund, Ofgem’s safety net for consumers whose energy company collapses. Every household is expected to pay into the billions of pounds that have gone into rescuing customers of failed companies. With 26 energy companies failing in 2021, there’s an industry assumption that some of the costs of taking on large numbers of new customers will be clawed back from customers themselves.
But what does this increase to the standing charge mean for you? Put simply, it means that it’s even harder to save money on your energy bill, even if you cut down on your usage. Because you’re being charged more whether you use any energy or not, it will be more difficult to apply energy efficiency measures or consumption habits that will make a big difference to your bill. However, reducing your energy usage will still ultimately reduce the amount you pay and is a good way to keep an eye on the relationship between your consumption and your bill.
So, what can I do?
- First of all, make sure you take a meter reading on March 31st. This is the only way you can ensure you don’t end up paying for energy you’ve used before April 1st at the new tariff rates
- If you pay for your energy using a prepayment meter, you could load up with as much credit as you can afford before the new rates come into effect
- Find out if you’re eligible for schemes such as the Warm Homes Discount and, if you’re over 66 or live with someone who is, Winter Fuel Payments
- If you’re in the position to invest in energy efficiency measures, there are a number of things you can do. From purchasing energy efficient appliances to insulating your home, check out our website for a range of advice
- Keep an eye on the simple things, like turning lights off when you leave a room and turning electronics off at the wall, rather than leaving them on standby. Small changes can make a big difference.
If you’re struggling to keep up with rising energy prices, we’re here to help.
Speak to one of our Warm and Well advisors for advice on a range of energy topics. There is often grant funding available to help you make your home more energy efficient, including installing boilers, insulation and central or low-carbon heating. If you live in Gloucestershire or South Gloucestershire, call us for free on 0800 500 3076. If you’re based in Herefordshire, our freephone number is 0800 677 1432.
If you’re struggling to manage or understand your bills – especially in the face of rising prices – and are worried what this year will hold, our Energy Advocates have your back. If you don’t know where to start and are battling with anxiety produced by your home energy, they will help you feel in control. If you live in Gloucestershire or South Gloucestershire, you can get in touch with our advocates here. If you live in Herefordshire, use this link to get in touch with the advocacy team in your area.
