Should you switch energy suppliers?
Energy prices have risen to unusually high levels. But why is this happening? And should you switch energy suppliers If your fixed rate deal is ending soon? Read on to find out.
Why can’t you switch energy suppliers right now?
If you’ve tried to switch energy in the last week or so, you may have noticed that suppliers and price comparison websites simply can’t offer any deals right now.
This is because wholesale energy prices (more on that below) are currently so high and the market is so unpredictable (more on that below too) that suppliers don’t know what rates will be from one day to the next and so can’t structure any new tariffs.
But what can you do if your fixed-rate energy deal is about to expire?
It’s not often you’ll hear us say this, but the best thing to do right now is to sit tight and do nothing.
If you do switch now, the rates you get are likely to be well above the current energy price cap rate. The price cap will stay at its current level for the next six months, and you can switch from an SVT at any time without having to pay an exit fee, so it could definitely be worth taking advantage of the price protection for now.
But prices will most likely rise again at the next price cap review. Latest forecasts suggest prices could increase by a further £400 as of April next year. This would mean the cost of gas and electricity for the average home is around £1,660 per year.
So it's important you keep an eye on the energy market to see if you can lock in more competitive prices before the price cap review in February next year.
If you're worried that your supplier could go bust, check out What happens when your energy supplier goes bust?
How is the energy price cap is keeping prices down?
If your fixed-rate energy deal expires, you’ll be placed on your supplier’s standard variable rate tariff (SVT). Under normal circumstances, rates on these tariffs are higher than the best-priced fixed-rate deals, but not right now as the energy price cap limits how much suppliers can charge. This means that – for the first time we can recall - standard variable rates now offer better value than fixed-rate deals.
If you are currently on your suppliers’ SVT or you’re about to be placed on it when your current fixed-rate deal ends, it’s worth keeping an eye on energy prices over the coming weeks – if things start to level off, suppliers might once again be able to offer better rates.
The trouble is, nobody can really predict what will happen next, so it’s probably worth popping your postcode into UKPower every week or so to compare energy prices and see what’s on offer.
Remember, we can use smart data to get the info we need, which means you can compare prices in less than a minute.
What to do if you’re struggling to pay your energy bills?
The big worry for many households is that they simply won’t be able to pay their energy bills this winter. Although the price cap is helping to keep energy costs down, you could still see your energy bills soar if your house isn’t adequately insulated, you’re running the heating off an old and inefficient boiler, and even if we just have a really cold winter.
This is because the price cap only restricts the amount suppliers can charge for energy, but your bills will still go up if you use more energy.
Then there are the added worries of the cut in Universal Credit and the furlough scheme ending, both of which will have an impact on household budgets.
If you’re worried you could struggle this winter, here’s what to do:
Check if you’re eligible for any of the following benefits:
Speak to your energy supplier to see if they can sort a repayment plan or offer access to any other grants, such as for a new boiler or home insulation.
If you’re on a prepayment meter, speak to your supplier about ‘friendly-hours’ credit, additional support credit or emergency credit. You should tell your supplier straightaway if you can’t top up your meter for any reason.
And check out these few simple ways to keep warm for less 👇
5 free and easy ways to keep warm for less this winterBeat the energy price hikes with these 5 free and easy ways to save energy and save money this winter.
Why are energy prices so high?
The first thing to bear in mind is that wholesale prices – the rates energy firms pay to buy the energy they then sell on to homes and businesses - have been steadily increasing since they dropped dramatically during the first lockdown of 2020.
This is one of the reasons why we saw the energy price cap rise by £139 at its last review.
But that doesn’t explain why prices have suddenly rocketed over the last week or so. That’s been down to finally feeling the effects of a perfect storm brewing over the last 12 months. Here’s what’s happened:
- A cold winter in 2020/21 depleted natural gas reserves and they’ve not been adequately replenished. This has led to gas shortages across Europe - low supply coupled with high demand equals price rises.
- There’s also been a high demand for liquified natural gas (LNG) in Asia, as many countries across the continent have bounced back from the pandemic quicker than expected. The Asian market is willing to pay more for LNG and so stocks are being diverted away from Europe.
- The Nord Stream 2 pipeline that will send 55 billion cubic metres of gas a year directly from Russia to Europe, bypassing Ukraine, has been hit with delays and complications. This has slowed imports from Russia.
- The UK has barely had any wind this summer, which has cut the amount of renewable energy we’ve been able to produce. There have also been outages at some nuclear power stations. This has meant we’ve had to turn to gas-powered generators to make electricity. This greater demand for gas is pushing prices up.
Click here to run an energy price comparison, and see if you could be paying less for your gas and electricity.