UK markets closed
  • FTSE 100

    +36.03 (+0.52%)
  • FTSE 250

    +50.14 (+0.22%)
  • AIM

    +6.12 (+0.49%)

    +0.0029 (+0.25%)

    +0.0056 (+0.41%)

    -2,322.75 (-5.15%)
  • CMC Crypto 200

    +7.26 (+0.52%)
  • S&P 500

    +15.05 (+0.36%)
  • DOW

    +164.68 (+0.48%)

    -0.39 (-0.61%)

    +10.50 (+0.59%)
  • NIKKEI 225

    +40.68 (+0.14%)

    +176.57 (+0.61%)
  • DAX

    +204.42 (+1.34%)
  • CAC 40

    +52.93 (+0.85%)

‘Big Six’ energy prices to jump as customers battle Covid

Simon English
·5-min read

1. The Big Six energy companies are putting up prices - why has this happened?

Energy regulator Ofgem sets an energy price cap to limit the price suppliers can charge consumers for their electricity and gas. The cap is supposed to protect customers from rip-off energy providers.However, it only applies to customers who are on a prepayment meter or a standard variable tariff (SVT), which is a provider’s default deal and the one most people are on.

Ofgem has announced that from April the cap will go up by £96 per year for a normal home on a default tariff, to£1,138, and £87 for those with prepayment meters to £1,156.

The “Big Six” energy companies have all said that they are putting up their prices following the increase to the cap, affecting millions of customers. Of those, Eon, Npower and British Gas have said they will put up prices by the maximum allowed by the new cap, with SSE and EDF increasing prices to just £1 below it.

Simona Rutkauskaite, research analyst at Look After My Bills, says: “Yet again Britain’s biggest energy companies are treating the price cap as a target to hit rather than the absolute maximum they should be charging hard-pressed families across the country.”

2. How can Ofgem be putting up a price cap designed to protect consumers when millions of people are struggling because of COVID?

The price cap is based on the ‘wholesale’ price of energy - the basic cost energy companies have to pay to get the energy in the first place. Ofgem said it had taken the step because the wholesale cost of energy - which the suppliers pay - had returned to more normal levels after plunging during the Covid emergency. Wholesale prices fell when demand from industry collapsed due to lockdowns.

3. Are prices going to keep going up during 2021?

The price cap is reviewed every six months. It is very hard to predict what the wholesale price of energy will be in the future, but as the country recovers from Covid-19, further increases are possible.

Experts have also warned that the remaining Big Six energy companies are likely to put up their prices in the coming weeks. “These latest price-rises will come as a hammer-blow to 4.5 million ordinary families who are already struggling financially as a result of the Covid-19 pandemic,” Rutkauskaite said. “At a time of financial uncertainty, the energy companies should be protecting their customers, not using the price cap as cover to hit people with higher bills.”

4. What can customers do to lower their bills?

Consumers now have many options available to allow them to switch onto a cheaper energy deal. Auto-switching services like Look After My Bills automatically put customers to the best available tariff every year and there are price comparison websites available which allow people to see which cheaper deals are on the market.

Almost 6 million people switched in 2020. However, millions of people are still paying over the odds.

"The positive is that there are already many tariffs that are more competitive than the price cap," Rutkauskaite said.

5. A massive energy blackout and snowstorm has happened in Texas. Could anything like that happen in London?

In recent weeks Texas has been battling extreme cold weather, with temperatures dropping to -18Cs. Gas pipes and wind turbines froze solid, just at the moment when the need for energy to heat people’s homes was greatest. The Texas energy grid is separate from the main US networks. This means that if a problem occurs, it can’t rely on them for help.

In the UK, the whole energy system is managed by the National Grid. As a result, if London was ever hit by an energy shortage, it can borrow energy from other parts of the country, limiting the chance of blackouts.

6. What has happened to energy company profits during the pandemic?

Energy prices reduced dramatically during 2020 as demand for energy from commercial businesses plummeted. This reduced demand and prices will have hurt the profits of all energy companies, including the Big Six. The Big Six energy companies normally publish their full profits at the end of the financial year in April, so we will have to wait for then to find out exactly what’s happened.

However, one company we know that is in particular trouble is British Gas. Its earnings dropped by over a third last year, and are now a fraction of the £740 million profits it made ten years ago.

7. Why are customers leaving British Gas and its workers going on strike?

Around 7,000 British Gas workers stopped work last Friday (February 26) and went on strike for four days, increasing delays for 200,000 homes who are waiting for visits. This follows a series of other four day strikes earlier in the month. Workers say this is in protest at being fired and re-hired under worse conditions, or face losing their job altogether. The action was taken as British Gas is seeking to roll-out new contracts for its staff and reduce its workforce to deal with major financial problems.

These problems were partly caused by the impact of Covid-19, but the company has been losing hundreds of thousands of customers over the last few years and it now has less than 7 million customers in total. This is being driven by rising prices and people switching to better deals with other companies.