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The energy price war

The energy price war

Category: Gas and electricity

Updated: 14/11/2013
First Published: 14/11/2013

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Earlier this week EDF became the latest energy firm to announce a price rise, but at just 3.9% it's less than half that of its major rivals. That leaves E.On being the only one of the Big Six still to announce a hike, although the firm has said that with increasing costs and a fall in profits it's increasingly likely to do so.

Meanwhile, Npower has pledged to cut its planned rise to gas and electricity bills to 6%, down from the 10.4% previously announced, if the Government reduces green levies. SSE has said the same, while smaller company Co-operative Energy has already cut its planned increase from 4.5% down to 2.5% in expectation of a reduction in green taxes.

Green schemes

A lot of energy firms have partly attributed the price hikes to the increasing costs of paying for Government levies, which is why many have pledged to reduce their rates if those green schemes are reviewed. As it stands, big energy firms (those with more than 250,000 customers) need to pay the Government for schemes such as the Energy Companies Obligation (ECO) and Warm Home Discount, with these levies currently accounting for around 8% of the average dual-fuel bill.

If those levies are reduced, firms will theoretically be able to pass on those savings to consumers. SSE has said that if levies were cut "we will reduce our bills accordingly – no ifs, no buts", whilst E.On promised to cut bills "pound for pound, penny for penny" should a reduction be made. Energy secretary Ed Davey is encouraged by recent announcements, having urged energy firms to not treat consumers as "cash cows" and warning that they need to "respond to consumers' concerns" to avoid damaging their reputations.

The Government is currently reviewing its environmental policies to see if it can make them more cost-effective, and the announcement on whether or not green taxes will be reduced is set to come with the Autumn Statement on December 5th. But, if levies aren't cut, customers won't see their rates change – and in the case of EDF Energy, they might actually see their prices put up further.

Consumers feeling the effects

Whether or not these changes come into effect, struggling families are already feeling the pinch. According to the Legal & General MoneyMood survey around 34% of households are set to be in fuel poverty this winter with low income households and the elderly being particularly affected by the ever-increasing price hikes, as it's these groups that spend the highest proportion of their monthly income on utilities. Ofgem, meanwhile, has reported that more than a million households are already in energy debt, with those behind on their bills owing an average of £436.

Perhaps even more worrying, even if bills are reduced should green levies be cut it may not be enough to stave off years of future price rises. Research from the National Audit Office estimates that there'll be an average real-terms increase in household energy bills of 18% between now and 2030, meaning the UK has potentially got at least 17 years of price hikes ahead.

What can be done?

Consumers are being urged to switch to a fixed low-cost tariff before the price rises come into effect. Even if expected rate hikes are reduced after December's Autumn Statement the resulting prices are still likely to be above those currently available, so compare tariffs now before it's too late.

What Next?

Beat the energy price rises -
You could save up to £320 on gas and electricity for your home

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