The makings of an energy price war

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by: MarkeD
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Word Count: 742
Date: Wed, 24 Mar 2010 Time: 10:52 AM
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We are in the middle of the coldest winter for thirty years and many, if not most of us, have been bumping up our heating to keep warm.

Obviously though, warmth and comfort come at a price and some people had been concerned that when their next energy bills are due, they will be paying through the nose for that comfort.

Cold winter bumps up energy usage

And they wouldn't have been far wrong according to recent research by Confused.com, which showed that the increased energy usage during the cold snap was expected to add an extra £60 to the average annual winter gas bill.

This is because around 77 per cent of people in the UK had their heating on more or at a higher level during the cold spell in January.

In fact, this research also suggested that 73 per cent of people in the UK are worried about their energy bills. But such concerns could potentially be eased following a recent move by British Gas to implement widespread gas price cuts.

Good news for consumers' pockets

The supplier cut its standard gas prices by 7 per cent, equating to an average saving of £55 per average customer (4 February), making it at the time, the cheapest standard dual fuel provider in the UK, with the cuts expected to benefit around 8 million people. At the same time, it also introduced a new Websaver 6 tariff, the cheapest tariff in the market and a best buy in 10 out of 14 regions.

But in the spirit of a good old fashioned price war, a new energy challenger has stepped forward, with first:utility trying to claim the title of cheapest standard energy supplier in the UK by launching a new standard dual-fuel tariff (10 February).

It claims its standard dual fuel tariff is £16.40 cheaper than British Gas if paying by cash or cheque and £1.40 cheaper if paying by direct debit for a period of 12 consecutive months.

A spokesperson for the first: utility said: "From consumers' perspective this kind of competitive pricing amongst the energy providers is a real benefit for UK households looking for the best deals."

Energy consumer body, Consumer Focus, welcomed cuts in energy prices but its energy expert, Audrey Gallacher was also critical that energy suppliers have been slow to implement such cuts, particularly considering the fact that wholesale gas prices have fallen dramatically over the past 18 months.

"Consumers could have seen prices fall earlier, as energy companies should have passed on wholesale price cuts before winter," she said.

Will energy prices come down?

Well, given the amount of attention British Gas has received over the price cuts and the challenge put forward to prices by first:utility, it is not unlikely that other major energy suppliers could also follow suit with price cuts.

Commenting on the British Gas price cut, Andrew Horstead, analyst at Utilyx, energy and carbon specialists, explained: "Given the sizeable drop in wholesale prices from the peaks in 2008, a 7 per cent cut is below our expectations. We have already seen a price war in the online market and we hope that this latest move will stimulate a similar response from the other suppliers to pass on lower cost to their beleaguered customers."

In terms of the outlook for gas prices, Horstead is anticipating a "further softening" and a "further cut in retail prices later this year."

But this is not all. Ofgem, the office of gas and electricity markets has also added further pressure to energy suppliers to cut prices in its recently published Project Discovery report, recommending substantial energy market reform to help lower costs for consumers.

What should you do now?

With the possibility of further energy price cuts looming, it is a good time to make sure you know your energy usage and how much you are paying for it, so you are in a position to consider switching if a better deal becomes available.Read more about the energy switching process here.

Gallacher added: "People should use the British Gas cut as a trigger to check they're getting the best possible deal - thinking about switching, making sure they're on the right tariff and getting the right advice on energy efficiency."

About the Author

Read more about gas and electricity at http://www.confused.com