Energy prices predicted to keep rising in 2017: switch and fix now

Published by Helen Knapman on 16 December 2016.
Last updated on 16 December 2016

Energy switching

Households are being urged to check their energy prices and consider fixing, as experts warn that gas and electricity prices are likely to continue rising in 2017 by as much as 5%.

Over the past six months the cheapest energy prices have risen from £734 a year in June to £870 a year now, according to energy comparison website Energyhelpline.com  – an increase of 18% or £136.

Plus, in just two months, the cheapest deal on the market has crept up from £744 a year to £870 a year – an increase of 17% or £126, according to price comparison website uSwitch.com

 

And it’s not just the price of the cheapest tariffs that are rising. Claire Osborne, energy expert at uSwitch.com says: "The price of the cheapest energy deal available has seen sharp rises since November, as wholesale prices, which make up almost half the bill, have climbed steeply over the past few months.

“As a result, many suppliers have replaced their cheapest deals with more expensive plans. Many small and medium sized suppliers have also hiked the price of their standard variable tariffs by an average of 8%, including Co-operative Energy, Flow and Ecotricity.”

“The big six have also raised the price of their best deals but, as yet, have not raised standard variable tariffs.”

Energy bills to continue rising in 2017

But it doesn’t end here, many experts predict that prices will continue rising in 2017 mainly due to an increase in wholesale costs, which is what energy providers pay to buy gas and electricity before distributing it to households.

Alan Richards from Mitie, an energy consultancy firm,explains: “Wholesale power prices have risen thanks to rising gas and coal prices. Coal has been the main driver thanks to restrictions on domestic production in China, which were put in place in the summer, bolstering import demand from the world’s largest consumer. Nuclear outages in France also drove up prices for this winter across the region, although this situation is starting to improve.

“Our view is that the wholesale market tested the floor in 2016 and will now rise. We are unlikely to hit the levels seen in early 2014, but things should steadily rise.”

Mark Todd, energy expert at Energyhelpline, expects these wholesale price increases to be passed on to consumers in the form of a 5% price hike in 2017. He says: “We expect to see price rises of around 5% next year or approximately £53 a year on a typical dual fuel bill.”

 

He’s not the only one. Ms Osborne says: "Wholesale prices have been rising steadily since April and this general trend looks set to continue into 2017, putting further pressure on bills."

Stephen Murray, energy expert at comparison website MoneySuperMarket.com, adds: “Wholesale prices have been rising since early summer and with it the prices of the cheapest fixed deals in the market. Brexit, oil prices and exchange rates can all be reasons for this and whilst wholesale costs seem to be dropping again slightly the pressure is still on standard priced tariffs going up in the first half of 2017.”

But Mr Richards warns that it’s not just wholesale prices putting pressure on the price consumers have to pay. “The main driver is the subsidies for renewables, which are added to the end-user’s bill,” he says.

“Transportation (distribution and transmission) charges are set to rise to meet investment needs. These charges account for a little over half of the household bill, but are set to increase by around 50% by 2020. So that’s an increase in the total household bill of around a quarter in just four years — considerably higher than the latest inflation forecasts. That’s assuming the wholesale element remains flat, but that could also rise making the increase even greater.”

Households should consider locking into a cheap fix

But savings are still possible. The cheapest deal on the market (as of 15 December 2016) is £870 a year for the average dual fuel user paying by direct debit – so you would save £196 compared to the £1,066 average bill across the big six energy suppliers’ standard tariffs, according to Energyhelpline.

Another boon is that this deal is fixed for 12 months – as are the majority of the cheapest tariffs on the market. This means you’re protected from rising prices for a year– although you may lose out if prices fall.

Mr Todd says: “You should definitely lock into a fix now. The longer you leave it, the higher the price you’ll pay. And if you don’t fix you’re likely to get hit by a price rise in the first half of 2016.

“The cheapest prices have risen from £734 a year in June to £870 a year in the last six months so savings of £196 a year are still possible off a typical bill of £1,066 a year, but these were £332 a year back in June.

“You should avoid standard tariffs – these are horrible tariffs. They’re expensive and offer no price guarantee to customers; the worst of all worlds – yet around 20 million homes remain on them.”

Mr Murray adds: “Two year or two winter fixed deals are becoming more popular but whether customers fix for one year, two years or longer the message is to move away from the expensive and variable standard tariffs now.”

And don’t be fooled by three of the largest providers - British Gas, E.on, and SSE freezing standard variable prices this winter. You're likely to still save more by switching.

Ms Osborne says: “While these price freezes might look good on paper, standard variable plans are the most expensive on the market and so price freeze pledges could lull many customers into a false sense of security.

“Consumers languishing on these expensive tariffs should switch now to save by moving to a fixed tariff which also gives longer protection against any future price rises.”

Energy providers named and shamed

The price warning comes as energy regulator Ofgem this week published new data comparing how much customers on standard variable tariffs could save by switching to a cheaper deal with their existing supplier, and how much they could save by switching to the cheapest tariff from 10 of the cheapest suppliers.

It hopes the information, which will be updated periodically, will boost transparency around energy bills and make it easier for customers to see how much they could save by switching tariff.

Almost seven in ten (66%) of all households are on standard variable tariffs, according to Ofgem, which are typically more expensive than fixed deals. The biggest saving it detailed, for example, was for standard variable customers with Extra Energy who can save £260 a year by switching elsewhere.

 

Providers will also have to supply Ofgem with information about the customers on the most expensive tariffs, which the regulator will then pass on to competing energy suppliers so they can offer cheaper deals directly to customers based on their actual energy usage.
 

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