Is switching energy providers pointless?

Price rises from all of the 'Big Six' seem inevitable. But even if everyone puts their prices up, that doesn't make shopping around a waste of time.

So far three members of the ‘Big Six’ energy providers have announced winter price rises. Another has admitted it will have to move on price before the end of the year, while even some smaller providers have increased their prices too.

As a result, there’s been a lot of talk about switching and saving. If everyone’s putting their prices up, is switching energy provider actually pointless?

The price rises so far

First to move was SSE, which hiked prices by an average of 8.2%. British Gas soon followed with an average price rise of 9%, with npower this week hiking bills by a whopping 10.4% on average.

Scottish Power has also admitted it will have to increase its prices at some point this year.

Co-operative Energy has announced the smallest price rise at 4.5%, while First Utility has promised no price increases until at least March next year.

Check out the energy deals available in your area

All energy providers are the same!

That’s the accusation I heard a woman on the train make last week, following the British Gas price rise. Her argument was that energy providers work like a cartel, all increasing their prices at the same time. So switch from one, and you’ll just end up paying the same amount with another provider, making the whole exercise pointless.

This idea that “they’re all the same” is also commonly applied to banks and politicians. You’re going to get robbed anyway, so better the devil you know. It’s an understandable view given the way the Big Six always seemingly follow each other with price rises.

However, the idea that switching suppliers is pointless is absolutely not true.

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Who gets hit by price rises?

When an energy company puts its prices up, not all of its customers are affected. My own provider (for now, anyway) is British Gas. But when its prices go up by £123 a year from next month, I won’t be paying any extra, because I’m on a fixed tariff.

It’s only customers sitting on variable tariffs that suffer. So if you fix your energy bills, you are taking control of your spending.

What's more, new rules from Ofgem have just come into force, which have banned energy providers from increasing prices on fixed rate deals, as well as rolling over fixed-term contracts without your permission. You'll also now get a window of 42-49 days before the end of your contract to decide if you want to stay or switch.

Let’s stick with British Gas. Based on what regulator Ofgem classes as average use, its average customer will be shelling out £1,444 a year on their gas and electricity after the price rise. If you are this average customer, there are a stack of deals that you can switch to that will save your money, as the table below demonstrates:

*Based on typical gas and electricity bill for someone who has never switched costing £1,420 (Source: Ofgem 2013)

These deals will not only save you money, but give you certainty over the price you pay for potentially four winters. Let’s face it, there’s a decent chance energy bills will have risen further over that period, so you’re likely to save a few quid over both the short- and the long-term.

That doesn’t sound like a pointless activity to me.

Relying on our apathy

Energy providers are like banks in that the more apathetic we are towards shopping around, the more they benefit.

So don’t let them. Shop around and compare the energy tariffs available in your area. If you’re on a fixed tariff like me, make a note of when it’s coming to an end and what exit fees you have to pay. Then, a couple of months before it finishes, begin comparing deals. If you’ll save more than the fee you’ll be charged to leave, switch. If not, wait it out and then move once there’s no exit fee.

Shopping around for energy deals is not a fun exercise. But it’s a necessary evil. And it could save you hundreds of pounds.

Compare energy deals with lovemoney.com

More on gas and electricity:

Scottish Power to pay £8.5 million to energy customers following mis-selling

How to beat the winter energy price rises

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How prepayment, credit and smart energy meters work

Who owns the UK's big energy companies?

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