More households hit by energy price hikes

More than five million households may now be living in fuel poverty after the latest round of price hikes were announced by two of Britain’s leading energy providers.

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Scottish & Southern Energy (SSE) is increasing its gas bills by 29.2% and its electricity bills by 19.2%, while Eon has also announced increases, adding 26% to the price of gas and 16% to the price of electricity. The dramatic increases come just weeks after EDF Energy increased its gas prices by 22% and its electricity prices by 17%, before British Gas announced a record breaking price hike of its own – with its gas bills leaping by a staggering 35%.

Providers blame wholesale gas prices and Alistair Phillips-Davies of SSE said the increases could have been “even higher” had wholesale prices not fallen back a little in recent weeks.

The justification will be scant consolation for Eon and SSE’s customers. Eon’s dual fuel customers’ average bill has increased from £1,063 in July to £1,297. In total, the company has 5.5million customers but around a quarter will be unaffected by the increases as they are on price protection deals or fixed tariffs. SSE dual fuel customers will now pay an average of £1,259.

More worrying is that the most hard-pressed customers may slump into fuel poverty with around 19% of households now affected. Fuel poverty is defined as spending 10% or more of your monthly income on energy.

The two other main energy providers, Npower and Scottish Power, are expected to announce price hikes of their own in the coming weeks. This may lead to a rush of consumers looking to move to fixed tariffs as soon as possible, albeit many fixed tariffs are priced higher than online direct debit deals. We discuss the quandary facing consumers in more depth in our video blog ‘reduce your energy bills’.

Despite the price hikes, there are still savings to be made. Millions of households are still on their provider’s standard tariff and are paying for their gas and electricity quarterly by cash or cheque. If you are one of them, use our comparison tool and input your postcode and usage details to find out how you could save money.

So what action should consumers take?

The obvious option is to switch to a fixed or capped rate tariff. However, demand for such products has soared in recent weeks and with further price rises imminent, only Eon is still offering a fixed product at its old price. Its Price Protection 2009, costs an average of £1,102.39 a year and anyone wanting to take advantage of this deal needs to act quickly as it is unlikely to be around for much longer.

EDF has launched a new product, Price Protection 2009, which is fixed until 31 October 2009, the average annual cost of which is £1,229.42 while British Gas has launched a deal that is fixed until September 2011. The average cost of this is higher at £1,240.19 but you are obviously protected against price increases for a longer period of time. But herein lies the problem.

The cheapest option for consumers remains a variable rate product – if you go for an online tariff and pay by monthly direct debit, you could be paying less than £900 a year for gas and electricity, but for how long?

Online tariffs

British Gas’ Click Energy 5 costs the average household £845.10 a year, although its prices have yet to rise. When British Gas increased prices of its standard tariff in January, it left the cost of its online deal, Click Energy 4, unchanged until the end of February.

Anyone signing up for an online tariff now therefore needs to accept the fact that the cost will probably rise before the end of the year. However, prices would have to rise by 52% before the cost of Click Energy 5 equalled that of British Gas’ Fixed Price 2011.

Such an increase within the next three years is quite possible given what’s happened so far this year, but are we likely to see similar increases again, or could we be near the peak of the current cycle?

You can find analysts who could argue each eventuality so you therefore need to base your decision on what you feel comfortable with. If rising food, fuel and energy prices are a worry and you would prefer the security of fixing your gas and electricity prices for the next three years, a 45% premium may be well worth paying.

However, if you want to keep your bills as low as possible for the time being and are happy to take a gamble and accept that they will probably rise, at least in the short-term, you may prefer to opt for the online option.

There is no right or wrong answer, you just have to go with what you are most comfortable with. That said, it is worth remembering that switching energy provider is really straightforward so whatever you decide to do now, it is worth checking regularly to see if there are any better options available to you.

The most accurate way of finding the cheapest fixed product for you is to use a gas and electricity comparison tool to compare rates based on your consumption levels and your postcode.

The only thing to watch out for is cancellation fees which apply to some fixed rate products. For example, you will be charged a £70 fee for gas and £30 for electricity if you cancel your contract on the British Gas Fixed Price 2011 during the fixed period.

How else can you save cash?

Regardless of which tariff you choose, it’s also worth looking for ways to reduce your energy consumption and minimise your bills as well as help the environment. We examined this issue in depth in last week’s article ‘energy saving tips’ but here are our top ten suggestions:

  •  Adjust your thermostat – According to the Energy Saving Trust, reducing your room temperature by just 1°C could save you around 10% on your heating bills. Also adjust the cylinder thermostat on your water to 60°C.
  •  Remember to turn lights off when you leave the room.
  • Close curtains to stop heat escaping.
  • Only boil as much water as you need, but remember to cover the element in the kettle.
  •  Use energy saving lightbulbs - they last around ten times longer than ordinary bulbs and can save you £40 over the lifetime of a bulb.
  • Don’t leave appliances on standby and don’t leave electrical items to charge unnecessarily.
  • Consider investing in a lagging jacket for hot water pipes and insulate pipes – this could pay for itself within a few months.
  • Defrost freezers regularly and don’t leave the fridge door open longer than necessary to ensure it runs efficiently.
  • Consider investing in loft insulation as 25% of heat lost in a home disappears through lofts without it.
  • Fix leaking taps – a dripping hot water tap could waste enough energy in a week to fill half a bath so make sure it’s turned off.

Have your say: What do you think about British Gas’ and EDF’s price rises? Could energy firms be doing more to help or are their latest price hikes fair? And how are you coping with rising bills? Visit our forum and let us know.

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