Benefit from the energy price war
Scottish Power has announced it is cutting its fixed-price tariff PriceSure by £81 in a move that experts say could herald the beginning of an energy price war.
The tariff allows customers to fix their gas and electricity costs until 31 January 2010, and is available for both new and existing Scottish Power customers. Originally launched at the end of November, Scottish Power has now cut the tariff by up to 10% - a saving of over £80.
Gerard Magee, head of marketing at Scottish Power, says PriceSave is now 10% cheaper than current standard gas prices.
He adds that other tariffs could also be cut in-line with cheaper wholesale crude oil: “We will continue to seek out further areas where we can pass-on savings. In terms of our general prices, we are still monitoring the wholesale markets very closely. If we continue to see a sustained drop in wholesale energy costs then we will reduce prices as soon as we’re able.”
Although the reduction in PriceSure will not affect the vast majority of Scottish Power customers, experts say the move has set the ball in motion and could lead to cuts by other suppliers.
Joe Malinowski, founder of energy price comparison website TheEnergyShop.com, says energy bills should start to get cheaper in 2009. “We believe that this is just the opening shot in the coming round of price cuts and is expected to set a minimum level for other suppliers to compete with,” he adds.
Suppliers are, however, expected to take a cautious approach to reducing their prices amid concerns about margins. Will Marples, energy expert at uSwitch.com, says the big six suppliers will mitigate the risk to profits by introducing cuts in two stages; an initial reduction of 10% to 15% in spring followed by a second cut of a similar or smaller level later on in the year.
"Scottish Power’s move is significant only in that it gives the biggest hint we've had so far of the level of energy price cuts consumers can expect in early 2009,” he adds. “If a 10% cut was applied to both gas and electricity it would shave £129 off the current average bill of £1,293, taking it down to £1,164. However, this would still leave bills £252 or 28% higher than the average £912 households were paying at the beginning of 2008.”
However, there are concerns that volatility in the wholesale market could delay cuts.
Scott Byrom, utilities manager at moneysupermarket.com, says: “With wholesale gas prices rising slightly recently, providers may use this as an excuse to think twice about an immediate price cut,” he explains. “Ultimately I urge people to keep abreast of the deals on the market and ensure they are on the best tariff for their usage, region and circumstances."
What should I do?
Shopping around for a new energy tariff if always a good idea as even if you don’t find a more competitive price you will get an idea of what type of deals are out there.
However, in the current climate where prices could soon start to decrease, should you fix or not?
Malinowski urges caution: “While we are strongly supportive of Scottish Power’s early move, we do not believe fixing energy prices at the current time is the right thing to do, even if the premium is as low as this one. In a falling market the best move is to go for the cheapest variable rate deal.”
He recommends opting for British Gas’ WebSaver 1 tariff, which could decrease if British Gas cuts its standard prices by more than 5%.
Byrom says Scottish Power’s PriceSure deal is now the cheapest dual fuel fixed tariff available, and should be considered by people who want the security of knowing exactly how big their bills will be for the next 12 months.
"Usually there is a hefty premium to pay for this peace of mind but at £1,112.90 a year, Scottish Power's PriceSure deal is only £54 more expensive than the best energy deal on the whole market - British Gas' online WebSaver1 tariff at £1,058.80,” he adds.
However, be aware that fixed tariffs may charge a termination fee - PriceSure has termination fees of £30 for electric and £20 for gas if you cancel before 31 January 2010.