Energy Prices To Increase By 50%

Gas suppliers pay more than double now than they paid for gas back in 2007, yet the price we pay has risen by perhaps just one third. Here's a tariff that'll lock in prices before the suppliers pass on their costs to us!

In July 2007, British Gas launched a unique product that tracks wholesale prices. `Wholesale prices' are the prices that suppliers pay for gas before they sell it on to us consumers. (What we consumers pay is called the `retail price'.)

With British Gas' tracker, every three months BG reviews the price it pays for gas and electricity. If the price has moved by more than 5% in either direction then it adjusts the amount that customers on the tariff pay accordingly. (Of course, this doesn't mean you pay the wholesale price. You do pay more, but your tariff goes up and down only as wholesale prices move.)

Since then, BG has increased prices twice: once in December by about 13% and once in March by about 5%.

And now, from 3 June it has increased prices a third time, by around 15%:

British Gas' wholesale-tracker tariff price increases, June `08

There are just 2,500 people on this tariff. However, we can expect that, once again, BG and all the other suppliers will increase their other tariffs over the next few weeks and months.

20% increase in prices this summer

In March, BG increased the price of its tracker tariff by just a small amount, so most energy suppliers didn't follow suit. However, it does mean that the total that energy prices need to rise this summer in order to catch up is now around 20%.

There is worse news to come

Big suppliers usually buy energy in bulk six to nine months in advance, so they pay future or `forward' prices. These prices are different from `spot' prices, which is the price they pay if they want more fuel today. But the price increases to British Gas' tracker still do not include the `forward' prices for this winter, which is when we usually see the biggest increases in both wholesale and retail prices.

If we look to forward prices going through winter 2008, we can see that the price of gas has more than doubled since July 2007. Yet we're paying perhaps just 30% more than we were last summer. Over the next year, then, we will see huge increases to the price that we pay.

Florian Ritzmann of Xelector, which powers our gas and electricity comparison tool, projects increases over the next two years. Ritzmann has accurately projected prices for me so far.

This time the expected scale of the increases has actually made fixed and capped tariffs attractive again. Ritzmann says that the best fixed tariff for most people will be npower's Price Fix 2011. Currently it's about 10% more expensive than a standard deal, but it's guaranteed for two-and-a-half years, which is the longest fix available. I've ran some comparisons and it looks good to me too.

Ritzmann believes that customers who sign up to this tariff will save 20% in 2009 and also that it will be 40% cheaper compared to the market in 2010. This means that prices will have gone up roughly 50% from today.

Sadly, Ritzmann says that this tariff will be withdrawn by 30 June at the latest. A replacement tariff will probably be 15% more expensive. I know what you're thinking, because I hate to be rushed into making decisions too. So set aside some time as soon as possible to do some proper thinking and research about what the best tariff is for you.

Read my thoughts on the BG wholesale-prices tracker in Avoid British Gas' Latest Tariff...It's all in the title really.

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