How To Compare Energy Prices Accurately

Here are some tips for making online gas and electricity price comparisons as accurate as possible.

19 months ago I wrote about the accuracy of gas and electricity comparison services. (The article was Are Gas And Electricity Comparisons Accurate?) In particular, I investigated The Motley Fool's tool, which the site should be proud of, and which was new at the time.

Today I'm going to tell you how to make your online comparison as accurate as possible. It involves two things. You must know your annual usage in kWh and your tariff details:

1. Know your annual usage in kWh

In comparison tools you can type in your usage in pounds or in energy (kWh). You can enter your annual usage, or in some cases your quarterly or monthly usage instead.

One point I made in the earlier article was that comparison websites, including The Fool, can't properly take into account how much you use in summer compared to in winter.

For good or for ill, what this means is that entering the total usage for the year will produce a more accurate result than entering shorter periods based on your most recent bill.

Entering quarterly usage

For that reason, if you enter your figures into a comparison tool on a quarterly basis, then expect the result to be incorrect by £50 to £75. (On the other hand, if you pay by the quarter you're probably on a very expensive tariff anyway!) This means when you switch you might spend as much as £75 more, or even £75 less, than the comparison tool is predicting.

Entering monthly usage

There is an additional problem if you enter how much you pay each month when you pay by direct debit. The problem here is that your monthly direct debit is likely to be a fixed amount. This amount will have nothing to do with what you actually owe, or how much energy you've used! Entering this figure into a comparison tool will likely produce a very inaccurate result.

I wrote something about this in Get An Extra £200 In The Bank! Energy companies set the direct debit as high as they think they can get away with. You won't realise you've used a lot less energy than you've paid until later, sometimes years later. Then you complain and insist on a refund. In the meantime, the energy company has had a nice, interest-free loan from you.

If you enter the monthly amount based on your fixed direct debit, expect the result to be incorrect by at least £50 to £100.

Entering annual spend

I explained in Are Gas And Electricity Comparisons Accurate? why entering how much you spend in a year is also not as accurate as we might like.

To sum up why using the yearly spend is not as accurate as I'd like, it's because two customers that have a tariff with the same name may still be charged different amounts! Energy companies leave long-term customers on an old rate that, on average, goes up over time. However, the supplier will offer new customers better rates on the same tariff. (One energy company that offers the same rates to all is EBICO.)

Therefore, the comparison tool has to make more guesses about how much energy you've used because it doesn't know how much your tariff cost. This makes it less accurate.

I think this is likely to leave your results around £50 off the true savings.

The best usage to enter

I've just explained to you about the least accurate usage information to enter and why. The best usage information to enter is your energy usage in kWh for a whole year. This way, the comparison tool can calculate the best tariff for you with the greatest accuracy. It simply divides the kWhs you've used by the cost of each tariff available and produces a pretty accurate result.

You can get your energy usage information by adding up the kWh figures from all your past year's bills.

I think that using your annual kWh figure will reduce the margin for error in the comparison results to maybe just £30 to £50.

What if you've just moved house?

If you've just moved, or if you've carelessly thrown away your previous statements, you should call your supplier, armed with a meter reading. (The main suppliers' telephone numbers are at the bottom of this article.) Ask them for the historical usage in kWh for the property over the past year. Then you have your figure for comparison.

2. Know your tariff charges

Remember at the start I said there were two things you needed? Well, here's the second.

As I've explained, you should get a pretty accurate comparison with the annual kWH figure. The cheapest tariff should be top, and what the comparison service predicts will be your total spend for the year should be quite close to reality.

However, comparison tools also try to calculate how much you will save compared to sticking with your existing tariff, e.g. it may say you'll save £150. That figure is not so accurate...Unless you add some more information about your existing tariff.

You can do this in The Fool's tool once you've got past page one by clicking on the `Variable Tariff Search' button. Then you'll be able to enter the precise amount you pay for one kWh, including standing charges. Let's say, for example, you currently pay 4.5p per kWh for gas and 12.5p per kWh for electricity. You can enter that information. If you have tiered prices or pay a standing charge you can type all that information in too.

Thus, the figure shown for predicted savings becomes more accurate...

Switch if you can save £70

However, the savings figure still won't be perfect. In fact, none of these tools are perfect as they have several other little flaws that we energy users can do nothing about. Therefore, when you compare prices, you need to consider the margin of error.

After two years of researching this area and writing about this subject, I believe that if a comparison tool predicts a saving of more than £70 then for most people it's worth switching.

Please note that the figures I've mentioned throughout this article are merely my best guesses based on idly playing around with numbers, tariffs and comparison tools. I'll continue to try to refine these estimates. What fun I have in my spare time!