Gas and electricity costs hit 5-year low

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Gas and electricity prices have steadily risen to become one of the costliest outgoings for homeowners in recent years.

Just as the price of filling up a car’s petrol tank has increased, so has the cost of heating a home, although the latest figures suggest that the upward trend may finally be at an end.

Data compiled by market information provider ICIS for its Power Index shows that wholesale fuel costs fell to their lowest level since 2011 at the start of January, which means energy providers are paying less for fuel.

These savings can then be passed on to the consumer in the form of a reduction in gas and electricity prices, helping to further lower household bills.

The gradually decreasing prices have already seen British Gas cut its costs; something it did in August by slashing bills by 5%, although this move was not replicated by the other members of the so-called Big Six energy suppliers – Scottish Power, npower, SSE, EDF and EON.

Reasons for the price drop

There are several reasons behind the drop in prices, although a key one is thought to be the increasing supply, of liquefied natural gas (LNG) coming onto the market, which is gradually complementing other, more traditional forms of gas as a viable household fuel.

As such, wholesale energy costs have fallen by nearly a third over the last 18 months, although this has yet to be passed on to consumers directly, with prices either remaining stable or even going up, in the case of some suppliers.

Why are costs not going down?

The quandary begs the question “why are prices not falling for consumers if energy suppliers are paying less for wholesale gas and electricity?” and this has been raised by a number of sector bodies, including the energy market regulator Ofgem.

The watchdog’s chief executive, Dermot Nolan, told the BBC that domestic gas and electricity prices should be cheaper "for the vast majority of people".

However, Ofgem data suggests that the majority of customers - around 70 per cent - remain on standard variable tariffs that have barely altered since early last year, and may be worse off as a result.

The key to taking advantage is to keep tabs on price fluctuations and to seek out the best deals, while being unafraid of switching suppliers, the regulator says.

Industry statement

Meanwhile, Energy UK, which represents all of the major energy companies in the country, noted that there is “a competitive market” of 34 suppliers and reiterated that consumers should aim to switch suppliers as there are potentially hundreds of pounds in savings to be had.

The benefits of switching were also highlighted by Richard Lloyd of consumer group Which?, who noted that this is a problem that has been raised before.

The watchdog noted that increasing competitive challenges to the main suppliers will likely be the best way to ensure that the benefits of lower wholesale gas and electricity costs are passed on to UK homeowners.

Future developments

It is an issue that is already in the process of being addressed, as the energy sector has been referred by Ofgem to the Competition and Markets Authority (CMA), which will publish its findings at the end of January.

In the meantime, UK homeowners looking to bring down gas and electricity prices are advised to look into energy efficient practices that can help bring costs down, and to keep an eye out for the best deals on the market and switch when the time is right.