In the past few weeks 10 energy firms have gone bust, and with suppliers likening recent events to the 2008 financial crisis, households could be in for a choppy ride.
What will happen to energy bills?
Twelve months ago, households with average energy usage who were on the cheapest gas and electricity deals were paying about £800 a year on a variable rate tariff, while customers opting for the best 12-month fix paid £817.
If your company has collapsed you will be moved to a tariff charged at the regulator Ofgem’s price cap. This is the maximum suppliers can charge customers on their standard variable tariffs and is set to rise by 12% on 1 October. Households that pay by direct debit will face bills averaging £1,277 a year for dual fuel, while those who use prepayment meters – typically the most vulnerable customers – will see average energy bills rise to an average of £1,309 a year.
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Analysts are warning that the cap could go up again in the spring of 2022 if the rise in wholesale gas prices is sustained. For an average user paying by direct debit it could be as much as £1,500 a year from April. The cap is set every six months after a review.
My supplier has gone bust – what happens now?
When a supplier fails, Ofgem has a process to automatically reassign customers to a “supplier of last resort”, so you will not be cut off. However, depending on your current tariff, your bills could rise considerably.
The customers of Utility Point, which failed earlier this month, have all been moved over to EDF. Customers of People’s Energy, another collapsed firm, were told that they are being moved to British Gas. Avro customers will be taken over by Octopus, while Shell Energy is to take on all Green’s account holders. Customers of the three firms that collapsed on Wednesday, Enstroga, Igloo Energy and Symbio Energy, will learn in the coming days who they will be switched to by Ofgem.
Make sure you take meter readings when you are notified of any change to your supply.
Will I stay on the same tariff as offered by the failed supplier?
No. In previous years the new supplier sometimes honoured the old firm’s tariffs, but that’s not going to happen now. Ofgem has confirmed that the default suppliers can only put the customers they inherit on a price-capped tariff.
Customers who were on the best fixed-rate deals could see their annual bills rise by up to £400.
Can I switch, and what happens to credit I have built up?
The supplier you are moved to will honour any credit balance that you built up with your old, failed provider. Once you have been switched to the Ofgem-appointed supplier, and any balance transferred over, you can leave at any stage without paying exit fees, although at the moment you are unlikely to be find a much better deal. Switches typically take 14-21 days.
My small supplier is still trading. Should I switch to a bigger supplier now?
As happened to the financial markets in 2008, the energy market has all but seized up. While there are a few companies still offering to take on new customers, there is little point in switching as you will just end up paying the same as Ofgem’s price cap. If your supplier does fail, you will end up with a big firm anyway but if it doesn’t, you will continue paying your lower tariff, so there is nothing to be gained by moving at the moment.
Are there any low-priced deals left?
No. Last week E.ON was offering one-year fixed-rate tariffs for about £1,200 a year for dual fuel but that’s now gone.
Should I get a fixed-rate deal when the best deals are so expensive?
If you really value price certainty, Sainsbury’s Energy which is supplied by British Gas, has a two-year fix at £1,680 a year – average usage. Bigger households would be paying £2,000 a year-plus. Most people will be better off staying on a capped deal, and hoping the market calms down.
Should I fix when the best deals are so expensive?
Probably not. MoneySavingExpert Martin Lewis, a previous champion of energy switching, says prices have risen so much in recent weeks that the savings consumers will make by sticking with their old, cheap tariff, while it lasts, will probably outweigh the extra costs faced later on.