LOWER energy bills could become real

Wholesale Energy Prices Nov 08

Wholesale Energy Prices Nov 08


In our last energy update of 15 October 2008 we concluded that, although wholesale energy prices had come down from their highs, they had not come down sufficiently far to warrant a cut in gas bills and, at that time, wholesale power prices were still pointing towards and increase in electricity bills of around 10%, although this increase could be avoided if we managed to get through the coming winter without any major supply disruptions.
 
We did however caution that we were in extremely volatile markets and that the picture could change quite quickly. Over the past 4 weeks the picture has indeed changed for the better.
 

  • The US dollar oil price has fallen by a further 24% and is now 60% off its 2008 peak. The impact in sterling terms has been mitigated by a further 8% depreciation of sterling against the US dollar over the same period, but even in sterling terms oil prices are now 51% off of their 2008 highs.
  • Wholesale gas prices have fallen by a further 15% and are now 33% off their 2008 highs.
  • Wholesale electricity prices have fallen by a more spectacular further 21% and are now 28% off their 2008 highs.

 
On balance we can now look forward to the prospect of a 10% cut in gas bills in 2009 (£80-90 off the typical gas bill) and a 5% cut in electricity bills (£25 off the typical electricity bill).
 
The issue now is whether there is sufficient liquidity in the wholesale markets to allow energy suppliers to take advantage of, and pass through, lower wholesale prices onto consumers.
 
Furthermore, although this is good news for consumers, a cut of £100 compares with average bill increases of £370 in 2008, so no-one is going to feel particularly well off as a result of these cuts (if and when they eventually happen).
 
Advice for UK consumers
 
(1) As a matter of urgency, review both your energy usage (from your meter) and your bills to ensure that your bills are up to date with your energy consumption. If you are relying on estimated bills you could be building up a big debt without knowing about it.
 
(2) If you pay by direct debit, make sure your direct debit payments have been adjusted to reflect recent increases in energy prices. A word of warning. If your direct debit has not been adjusted for either of the two prices increases of 2008 your monthly payments will need to increase around 70% to make up for the increased prices and the payment deficit that you have accrued.
 
(3) If you have still not switched, then SWITCH. The Ofgem Energy Probe concluded, “On an average basis over the past 3 years, around three quarters of the gross profits of the Big 6, and all of their net profits, arise from their in-area electricity customers,…”. In other words, you’re getting the worst possible deal by being on this tariff. The same can be inferred for customers on Standard tariffs.
 
(4) The cheapest dual fuel deals are £190 a year cheaper that average Standard bills. There are typically no exit penalties and this is our preferred option.
 
(5) Fixed Rate deals generally cost a premium. That premium currently runs from £160 to £371 above the cheapest deal (£13 to £31 a month) and can carry an exit penalty of up to £100 for early termination. In a falling market it makes little financial sense to pay a premium for protection particularly as wholesale markets typically give us a good 3-6 month warning of future price changes. We would avoid Fixed price deals for the time being.
 

Wholesale vs Retail Energy Gas Prices Nov 08

Wholesale vs Retail Energy Gas Prices Nov 08

What we think:
 
Continued falls in global energy prices have now taken UK wholesale gas and electricity prices back to a level that finally indicate cuts in domestic energy bills are on the cards. At current wholesale prices we can look forward to standard energy bills being around £100 lower in the spring of 2009 compared to current levels.”
 
Unfortunately most consumers will barely notice the difference particularly when compared to the average increase of £370 that we’ve seen in 2008. Our advice remains essentially unchanged. Firstly, ensure that you bills and direct debit payments are up to date to avoid unknowingly working up large debts to your energy supplier. After that it’s a case of getting the best deal you can. We recommend going for the cheapest. You can save around £190 a year compared to a standard tariff and there are no exit penalties.

 
Latest Price Changes

Latest Energy Price Changes Nov 08

Latest Energy Price Changes Nov 08


Source; www.TheEnergyShop.com
The increase shown is for the average of Monthly Direct Debit and Cash/Cheque bills (excluding any prompt payment discounts) for the relevant suppliers’ Standard tariff based on an average usage profile.
 
Aggregate Increase 2008
Aggregate Price Increases Nov 08

Aggregate Price Increases Nov 08


Source; www.TheEnergyShop.com
The increase shown is for the average of Monthly Direct Debit and Cash/Cheque bills (excluding any prompt payment discounts) for the relevant suppliers’ Standard tariff based on an average usage profile.
 
Standard Energy Bills
Standard Energy Bill Prices Nov 08

Standard Energy Bill Prices Nov 08


Source; www.TheEnergyShop.com
The bill shown is for the relevant suppliers’ Standard tariff (excluding any prompt payment discounts) based on an average usage profile.
 
Best Deals (10 November 2008) Monthly Direct Debit
Energy Best Deals Nov 08

Energy Best Deals Nov 08


Source; www.TheEnergyShop.com
 
Best Capped/Fixed Energy Deals (10 November 2008) Monthly Direct Debit
 
Best Capped Fixed Energy Deals Nov 08

Best Capped Fixed Energy Deals Nov 08


Source; www.TheEnergyShop.com
Please note that all Capped/Fixed deals now have exit penalties for early termination. Please see our website for further details.

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