Get energetic about cutting fuel costs

Utility bills look set to climb. Financially-beleaguered homeowners who rejoiced at the good news of a quarter percentage point drop in interest base rates can now lament the bad news: the likely increased cost of fuelling that home. So take steps now to minimise the money you allocate to power.

The energy supremos seem to have plugged into the wrong market forecasts. Earlier this year (during the warm, balmy low-energy-consuming summer months) a series of price cuts and deals were announced by major suppliers. For instance, British Gas trimmed its gas prices twice (by 17% and 3%) and Powergen launched an energy deal which promised a fixed price until January 2009.

Now Centrica-owned British Gas has announced, with immediate effect, increases in its Market Tracker tariff (this follow prices in the wholesale energy market) of 13% for gas and 15% for electricity. True, most of Centricas 10 million gas and 6 million electricity customers won't be affected by this hike as they are on standard or online tariffs.

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Hot water ahead?

However, most energy pundits see this move as indicative of a black cloud of higher power prices generally in the early months of 2008. It is thought that nPower will propose a similar increase in its tracker deal come January while EDF Energy and other suppliers are mooting price rises of up to 10%.

Although the cost of oil - which to a large extent determines European energy prices - has receded from its $100 a barrel high, annual forward gas prices for 2008 have risen 42% to 47p a therm, around 10p more than analysts expected. The average annual UK household energy bill, as a consequence, is set to exceed the £1,000 level next year and in some cases could rise by as much as 20%.

Insulate yourself with preventive action

The average annual household spend on gas and electricity is currently around £900. UK disposable incomes are recognised to be at their lowest for a decade. You cant afford to waste money when buying energy. An obvious step is to cut back on your level of power consumption (there's no law against wearing two or more woolly jumpers, except possibly a fashion dictate) but you also need to be certain you are not paying over the odds to your existing energy provider.

The deregulation of the gas and electricity markets in the late 1990s gave households the option to shop around and not be tied to electricity from a particular regional supplier or to British Gas.

Since then it is estimated that 13 million UK households have changed their fuel supplier and subsequent switching can bring savings of as much as £146 on the annual bill. The bigger savings, though, are for those households (around 9 million) who have never deviated from the old system, still paying their quarterly bills by cheque.

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Energy savings there for the taking

By opting for a 'dual fuel' package, say, and paying by direct debit these households, which include two thirds of all over 60 year-olds (but then they do have their £200 Winter Fuel Payment up their cardigan sleeve), could realise substantial savings, to the tune of some £300 per annum.

The dual fuel option, whereby a single company supplies both gas and electricity, is often but not always cheaper than using two separate suppliers. Other factors have to be considered, not least the pricing differential operated by electricity providers. This means that local long-standing customers pay more, in effect subsidising the competitive prices offered by a company to new customers in other regions.

14 December 2007 © Moneyextra.com

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