You can turn off gas hikes like a tap. But will you get burnt?
Fixed bills can bring a warm glow, but not if prices fall
Sunday 08 October 2006
They were giving it away last week. Gas, that is, as a glut hit the UK thanks to a test run of the new Langeled pipeline linking the Yorkshire coast to North Sea fields owned by Norway.
Coupled with warm weather that depressed household heating needs, there was simply too much gas going round. And so, with the basic economics of oversupply and low demand at play, the cost hit the floor and the National Grid paid traders to take excess gas off their hands.
But if that sounds like welcome relief for millions of UK consumers - the average annual gas bill has risen by 81 per cent since January 2004 to £585.50, says the price-comparison website SimplySwitch - look below the surface. Because of the way the gas market works, last week's developments won't immediately translate into lower bills.
The suppliers that heat our homes buy gas on the wholesale market on what's called a "forward contract" basis. In other words, they guarantee future supply - several months ahead - at a set price to bring an element of stability to consumer bills.
The free gas last week was taken for immediate use by industrial users and traders and had nothing to do with residential prices, which have been at record highs due to supply difficulties earlier this year and Britain's new status as a net importer of gas as its North Sea fields run down.
Forward contract prices remain high compared to this time last year but have fallen by around a quarter since June because of developments such as Langeled and confidence that supply will be much more plentiful this winter.
This should mean consumers can expect lower prices in the not-too-distant future. Ofgem, the energy regulator, made it clear recently that the gas market will be monitored to make sure providers do pass on these savings.
For now, though, the pain continues. Npower customers began to feel the pinch last Monday from its latest rise - 17 per cent for gas, and 10 per cent for electricity.
Families now pay an average of around £1,000 a year for gas and electricity so it's no wonder many have looked at ways of keeping a lid on prices.
In the past 12 months, more than three million consumers have signed up for fixed or capped-price energy tariffs, so insuring themselves against any increases in the near future.
And despite the signs that prices are set to fall, plenty more may still be keen to sign up to these deals to keep their bills stable.
There are three "dual fuel" deals - available from British Gas, Powergen and EDF Energy - and all offer the opportunity to fix or cap your tariff. If prices rise, your bills don't; if they fall, you still pay the higher sum.
British Gas's current deal, Fix and Fall, charges a premium for gas but a discount for electricity. From the date you sign until 30 December 2007, you pay 2.84 per cent below the current standard rate for electricity and 1.6 per cent above the current price for gas.
Then, on New Year's Eve, you switch to 13.8 per cent below the electricity price and 1.6 per cent is knocked off your gas costs. The whole deal ends on 31 December 2008.
EDF's deal is a straightforward fix, at 3.5 per cent above current prices, until 31 July 2010 and is available to anyone under the EDF Energy, London Energy, Seeboard or SWEB Energy brands.
Powergen has a deal capped at 5 per cent above current prices until 31 March 2010.
None of these deals impose redemption penalties on customers who want to get out of their contracts early to take advantage of plummeting prices. People who have signed up to other fixed offers don't have the same luxury. Those who bought into the first fix - Price Protection 2007, launched by British Gas in 2004 - face a £30 penalty for bailing out now, though they will have saved £357 a year thanks to the scheme.
It's not easy to compare fixed deals against normal variable bills as we don't know how energy costs will move over the periods covered by these offers.
But the comparison websites that help people find cheaper energy deals are not fans of long-term fixes.
While cynics might say this is because they get around £40 a time for finding a new client for an energy firm, Karen Darby of SimplySwitch says fixed deals just aren't in the best interests of consumers.
"We expect one of the big six energy companies to drop their prices in the not too distant future. This could start a price war and would end over two years of consumer misery."
Anybody who has never changed supplier could still make big savings - up to £240 a year, according to switching websites - by moving their business instead of opting for a fixed deal. Independent watchdog Energywatch ( www.energywatch.org.uk) is a good first stop and has a list of accredited switching companies on its website.
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