First Utility launches UK's cheapest energy deal

The Big Switch campaign was supposed to secure buyers a market-leading energy deal. Yet it has already been trumped.

The Big Switch campaign, run by consumer group Which?, was a landmark experiment in fighting back against expensive energy tariffs.

It was hoped that by using people power, the initiative could make use of stronger bargaining potential to negotiate a better deal on energy bills from any energy company who had the courage to step up to the challenge.

What's more, the deal that 'won' this reverse auction, from Co-operative Energy, is not even the best deal in the market at the moment.

So what happened?

The Big Switch

Energy costs are a big concern for households up and down the country at the moment. It is said that a fifth of homes are suffering from ‘fuel poverty’ (defined as when 10% of income is spent on energy bills), yet many are either too baffled by the numerous tariffs, unconvinved there is much of a difference between them or too wary of smaller independent companies to make a change.

The Big Switch was supposed to dispel such worries and reverse the traditional power structure. Consumers were placed on top and encouraged to sign up between February and March, to form a collective that wanted to switch provided the energy providers came up with a competitive offer. The idea was: the more people who sign up, the stronger the bargaining power to get the best deal.

Five energy suppliers, Co-operative Energy, EDF Energy, E.ON, First Utility, and Scottish Power jumped on board as the bidders in this ‘reverse auction.’

The scheme clearly hit a nerve with a public frustrated at the rising cost of energy bills, as 50,000 signed up to the initiative within 48 hours. In total just under 290,000 were poised waiting for a deal that would be so good it would make them want to switch.

Controversy

The Big Switch was marred by controversy when two of the Big Six pulled out (Scottish and Southern Energy and British Gas), with concerns raised about the fee Which? was being paid by the energy companies.

Which? admits on its website that it expects to receive a fee of around £40 per customer from the winning energy company. It argues the money is only intended to cover the cost of the project and suggests more scrutiny should be directed towards those of the Big Six who decided against taking part.

The result

Co-operative Energy won the bid with a tariff that, it was claimed, could save Big Switch subscribers £123 a year on their energy bills. The Pioneer Fixed tariff will cost £1,048 a year for the average household if they pay by Direct Debit, and £1,144 a year if they pay by cash or cheque.

There were just two problems with the winning tariff - it isn't the cheapest on the market, and not all of the people that signed up to the Big Switch will be able to access it. Fairly big problems, if we are honest.

Getting the cheapest deal

First Utility has already undercut the deal from Co-Operative Energy with its iSave Fixed Price v2, a deal with an annual tariff of £1,047, £1 cheaper than the Co-Operative tariff.

First Utility now offers both the UK’s overall cheapest energy deal, the iSave v10 (£1,027) which is a variable option and the UK’s cheapest fixed-price energy deal (£1,047) based on medium usage.

The iSave v10 is £21 cheaper than the Big Switch winner and £27 cheaper a year than runner up EDF Energy.

The runner up deals

Co-operative Energy is only offering its deal to 30,000 of those people signed up to the Big Switch, on a first-come, first-served basis, leaving the remaining 250,000 that hoped to benefit from the scheme out in the cold.

Which? says it decided to cap the number of new customers to make sure as many suppliers as possible could take part in The Big Switch but the move has been described by industry figures as disappointing.

Shopping around

The Big Switch scheme may have failed to deliver across the board to those who signed up, but it has highlighted the importance of shopping around for a new deal regularly.

If you signed up to The Big Switch you will have until the 28th of May to decide to go with Co-op. But if you aren't one of the lucky ones, then it is worth taking a look at how the tariffs below rank.

* based on average bill of £1,345 per year in Oct 2011  (Source: OFGEM) and adjustment of £23 for recent price drops

Source: energyhelpline.com prices correct as of 14/05/2012

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