Are energy prices going to rise this winter?

As the colder weather returns and we start to think about turning up the heating, all eyes are on the energy market.

Will suppliers hike their prices this winter?

In search of an answer we asked a number of experts if they think consumers should expect a price increase in the next few months, and what steps people should be taking in the meantime to help keep costs down.

Energy prices are rising

EDF Energy today becomes the first of the ‘big six’ energy suppliers to hike its prices in two years. EDF increased its prices by 2.6% for 1.2 million of its customers, raising the average dual fuel bill from £1,159 to £1,167 a year.

EDF’s move followed the decision by one of the smaller energy companies, Ovo Energy, to withdraw its market leading tariff and increase its prices in May earlier this year.

What's more, in the last few days two of the cheapest energy deals available online have also been scrapped - nPower axed its cheapest fixed rate deal, replacing it with a tariff 4% more expensive, while Ovo Energy increased its cheapest one-year fixed rate tariff by £45.

Does this mean other suppliers will follow suit?

There is much debate in the industry as to whether these recent price increases are an indication that other suppliers will follow suit and hike their prices too.

Mark Todd, director of the independent price comparison website energyhelpline.com, said: ‘There has been a perceptible upward trend with most of the major suppliers raising their cheapest rate by 5-10% during the summer’.

‘In April, switchers could grab a tariff as cheap as £855 a year for an average home using gas and electricity. Now the cheapest rate is £890,’ he said.

(The table below, provided by energyhelpline.com, shows a selection of price rises on suppliers' cheapest tariffs this summer.)

Todd said: ‘With wholesale prices going up there is every indication this pattern could continue, with family homes paying an extra £150 on their bills this winter’. He predicts price rises will hit consumers in the New Year.

Scott Byrom, energy manager at moneysupermarket.com, meanwhile agreed and said: ‘With wholesale energy prices hitting a year-high in July, I fully expect more leading deals to be withdrawn for new customers, and replacement tariffs to continue the upward trend we’re seeing to the cost of energy'.

Likewise, Gareth Kloet, head of energy at Confused.com, said: ‘With winter approaching, it's highly likely that energy prices are going to rise and I strongly suspect that the energy companies will raise their prices in the short to medium term’.  

Don’t panic, prices won’t rise

However, according to Ann Robinson, director of consumer policy at uSwitch, prices will hold steady this winter.

She said: ‘I don’t think that there will be any general price increase this winter. Wholesale prices are looking good - a lot lower than in 2008 when prices went up 42%’.

Robinson also explained that EDF did not raise its prices this year due to increasing wholesale prices, but in order to come into line with Ofgem’s new cost reflectivity rules. Prior to the ruling EDF had been undercutting competitors’ prices in certain regions in order to win new business. The increase therefore is not a signal that the ‘big six’ suppliers are planning energy price hikes.

Meanwhile, Robinson explained that although OVO’s recent price hike was down to increases in wholesale prices, it is important to remember that OVO, as a small supplier, is more sensitive to fluctuations in the market and quicker to pass on changes in prices to consumers.

In fact, according to Robinson consumers are actually owed a price cut. Although she admitted it is unlikely we will get one until suppliers see how Ofgem’s new rules, which are designed to make energy bills clearer so it is easier for customers to compare the cost of different deals, affect business.

‘Only 13% of people have online deals, if another 10% go online it will be like a coach and horses through their pricing strategy’, she explained.

Audrey Gallacher, head of energy policy at Consumer Focus, said: ‘There would be absolutely no justification for price rises this winter’.

‘The price energy companies pay for energy has halved since 2008 but the price they charge consumers has dropped just 7.5%. If price rises occur, it will be time for an independent investigation into the energy market to make sure consumers are getting a fair deal,’ Gallacher added.

So, what should I do?

The message from the experts is simple. If you are not currently on a competitively priced tariff, switch now to a cheaper deal. One of the quickest and easiest ways to do this is via a Consumer Focus accredited price comparison website.

Stephen Ratcliffe, head of utilities at BeatThatQuote.com, said: ‘If you are concerned about potential price increases there are still a few fixed price tariffs in the market, where you can secure the rates you pay for a set period of time’. Ratcliffe added that because it can take four to six weeks to switch if you want to fix it is worth doing so now before the best deals disappear.

Robinson, however, urges consumers only to fix if they find a good deal, not because they think prices are going to go up rapidly. And remember if you do fix there you will almost always be charged a penalty fee if you leave before the deal expires.

Kloet meanwhile added: ‘Some providers are offering additional incentives (such as cash back, reward points, free energy monitors etc) to customers who opt for certain tariffs and these can often be a good choice for those people looking for those specific benefits’.

Kloet also reminds customers they can often make further savings if they put both their gas and electricity with a single provider (on a dual fuel tariff) and pay by direct debit. You should also contact your energy supplier to find out if you qualify for an energy saving grant, for cavity wall or loft insulation for example, as this can also help reduce your heating bills, he said.