Solving The Tariff Trap
Why do energy suppliers trap so many consumers in tariffs that are too high? Can anything be done?
Promoting competition in the energy industry was supposed to work so well. Suppliers were supposed to be able to compete for customers by lowering prices and offering incentives for business, all with the Ofgem energy price cap acting as a safeguard for consumers. However, in the aftermath of the worst energy crisis ever in the UK, many consumers are experiencing more misery, paying bills to their suppliers that are too high, but unable to switch elsewhere.
In this article, we’ll examine the ‘tariff trap’ in more detail. What is it? Why is it happening? Finally, how can we fix it? Let’s get started.
Fixed tariffs are too high
Back in August, Ofgem announced its latest price cap. Under the new cap, the average household will pay £1925 per year for their energy. This is 7% below the previous cap, which Ofgem set at £2074, which in turn was lower than the cap before, which was £2500. The new cap is, therefore, at its lowest rate since March 2022 and will be effective from October 1st.
Therefore, consumers should be paying much lower prices. But in too many cases, they’re not. Research from Warm This Winter discovered that 340 fixed price tariffs are more expensive than the current price cap. Eleven of these tariffs are still available to consumers.
In an ideal world, if you’re a consumer paying over the market rate for your energy, you could switch to a different supplier offering a lower fixed price. However, many suppliers charge expensive exit fees to consumers trying to switch before the end of their contract. This includes some of the biggest suppliers in the business, such as British Gas, E-On, EDF, Ovo and Scottish Power. Ecotricity charges the highest exit fees in the marketplace, averaging at £150 per fuel type. Good Energy is the only supplier that doesn’t enforce exit fees on any of their tariffs.
In defence of these suppliers, they say they need to charge exit fees to cover losses when the energy they buy wholesale in advance has to be sold back to the consumer at a lower price. They believe it’s for their protection, in the same way that fixed deals protect consumers if prices rise during the term of their contract.
How to fix it
There is no legal requirement that energy suppliers must not charge exit fees to customers trying to switch during the life of their contract. However, many industry experts believe that in the wake of a challenging energy crisis, where bills have been at record highs, suppliers should cut their customers some slack. Could they show some goodwill and waive their fees? That would certainly fix this issue.
Other industry observers believe the UK government should take action on the suppliers through long-term tariff reform. However, seeing as they’ve recently spent billions on the Energy Price Guarantee to help customers through the energy crisis, it may be a stretch to expect further help.
The best advice is for consumers to be vigilant and know what you’re signing up for when you switch to a new energy tariff. Understand that while fixed tariffs help you when the price of energy goes up, you could be paying over the odds if the energy price goes down. If your tariff has exit fees in force, do your research and calculate whether you may be better off finding a tariff that doesn’t insist on these charges.
The smart meter effect
Smart energy meters greatly benefit consumers as they allow you to see exactly how much energy you consume in real-time. You can also see how much you spend per day and week. Once your smart meter is up and running, you can take advantage of exclusive tariffs from your energy supplier, only available to smart meter users.
Smart meters deliver these and several other benefits to consumers, so it’s a shame that the UK’s smart meter rollout is again falling short of targets. The rollout is stalling, with fewer and fewer customers asking their suppliers to install meters in their homes. There are also issues with the smart meter network and a lack of installers to get them into homes. While 58% of meters in the UK are now running smart, the target of getting to 80% by the end of 2025 seems a long way off.
As a result, some industry stakeholders, including Centrica and Utility Warehouse, are asking the government to make smart meters compulsory rather than voluntary. This might work, but without the installers or the infrastructure to allow everyone to reap the rewards of smart meters, a compulsory mandate may do more harm than good.
Looking to the future
Looking at the problems with high energy tariffs, exit fees that are prohibitive to switching and a stalling smart meter rollout, it’s clear that all is not well in the energy industry.
We all want to see greater choice, lower bills for customers, more renewable energy instead of fossil fuels, and a smoother-running network for suppliers, but how can we get there? Is it even achievable?
If the industry is to get back moving in the right direction, it needs greater collaboration between the government, regulators, trade bodies and suppliers. We hope the industry can work better together in this way and avoid further problems down the road.