Our friends electric and gas

Source: Pixabay

One significant cost that households have that they can take action to reduce is electricity and gas utility costs. According to energy market regulator Ofgem, the average dual fuel variable tariff as of April 2019 was £104.50 per month, or £1,254 a year, but the cheapest tariff available was around £880 a year, or just £73 a month. That is a 30% saving. Today I ran a price comparison using Money Supermarket based on UK average household kWh usage. The standard cost for our current provider is £1,197 but the cheapest tariff was £948, and that is a 20% saving.

We have lived in our current home for over twenty-four years now and have spent over £25,000 on these utility costs. Our costs in 2018 were 78% higher than in 1996 which compares with an 85% increase in inflation (RPI measure). Over those twenty-three complete calendar years our actual total costs were, however, some 2.44% higher than a calculation of our 1996 costs uprated for RPI each year. This is reflected in there being nine years when our costs ran ahead of RPI (2005-2010, 2012, 2013, 2015). During these twenty-four years we have moved from a two-person household to a four-person household. We have moved from no one being at home during week days to someone being at home most days. We did have to buy a new central heating unit and efficiencies from that have maybe helped to cover these greater demands.

Initially we stayed with the default energy providers for our area but after significant increases of 27% in 2005 we then began switching providers every year or every other year in order to control or reduce our costs. Interestingly just looking at the 1996, 2005 and 2018 years gave the following results. From 1996 to 2005 our utility costs rose at a compound rate of 3.63% compared to 2.58% for RPI inflation, then from 2005 to 2018 our utility costs rose at a compound rate of 2.65% compared to 3.02% for RPI.

Recently we initiated our latest energy switch as a two-year deal came to a close. We ran a price comparison using the Cheap Energy Club on 26th August with these annual cost results:

Best price £1284
Current plan £1356
OK or Good review £1404
Big company £1452
Current provider best £1560
Current provider rolling £1913
Worst price £2412

We chose to go with the “OK or Good review” provider at £1,404 per annum (i.e. £117 per month). This may be £120 more than the best price from a provider with no reviews or bad reviews, but it is £509 less than our current provider’s rolling standard default plan, a 27% saving, and £1,008 less than the worst price on the market.

Switching can be done quite easily. The Money Saving Expert website founded by Martin Lewis, but now part of Money Supermarket, has its own comparison tool the Cheap Energy Club. You need to know your annual usage of electricity and gas in kWh but that should be provided in a renewal offer from your current provider. Alternatively, you should be able to obtain it from your bills for the last twelve months.

The regulator Ofgem has approved a number of other online price comparison sites where you can look when comparing energy tariffs and supplier deals:- Energy Helpline, Energylinx, The Energy Shop, Money Supermarket, My Utility Genius, Runpath, Simply Switch, Switch Gas and Electric, Quotezone, Unravel It, uSwitch.

I’ve just rerun the price comparison using Money Supermarket this time. You need to give your email, your property address, your required supply, e.g. electricity and gas, your current supplier, payment method and tariff, your current annual usage and your intended payment method. You will then receive an email detailing the top quotes and how much you would save. Using the same data as before this gave an annual cost of £1, 407 from the same provider as before. I then ran the calculation again based on our house type rather than the kWh usage and this time the cost was £1,445 suggesting our usage is near average for our house type.

We can’t be certain of how much we have saved over the last thirteen years by continually switching but based on the latest switch saving us about 27% against the default plan we may have saved over £6,000. If such a saving had been invested it could have grown to be over £10,000 based on growth of 8% per annum. It is worth taking the time to switch providers with such a good payback for such little time.

15 Replies to “Our friends electric and gas”

  1. Out of interest, what rpi measure did you use – overall rpi or the subordinate figures for gas and electric (combined somehow) available from the ONS?

  2. Thanks for commenting. I used overall RPI which has increased from 154.4 to 285.6 (1996 to 2018). I’ll have a look at the RPI for electricity and gas.

  3. Overall RPI increased by 85% from 154.4 to 285.6 between 1996 and 2018. RPI for electricity increased by 138% from 147.0 to 349.5 between 1996 and 2018. RPI for gas increased by 194% from 124.3 to 365.0 between 1996 and 2018. A 50/50 split suggests an increase of 163%, or a 56/44 (electricity/gas) split, in line with our usage, suggests an increase of 160%. Our actual increase was 78%, but if we had reverted to our current provider’s rolling standard default plan (£1,913 annual cost) then our increase would have been 157%. So, it looks like we beat these indices by our actions.

  4. It is indeed a bit of a beast this inflation thing!
    What can you say about your apparent preference for RPI over, say, CPI or CPI(H)?

  5. I have used RPI because it is the older indicator, it is still widely used, and it is usually about 1% higher than CPI. I’d rather over estimate inflation than under estimate it.

    • Ok, understand.
      However, there is, at least, one other possible consequence of this approach:
      Do you have any deferred DB pension entitlement, and, if so, is it revalued in line with rpi or cpi?

      If you do have deferred DB entitlement revalued iaw cpi then in order to be consistent with your rpi preference you must accept that as each year passes your DB pension is losing some purchasing power due to inflation differential between rpi & cpi.

  6. I am somewhat intrigued how a 50 something, UK based, man has managed to have no DB entitlement. Was this by design, or did you transfer out, or ……
    Do you have anything you wish to share on this topic?

  7. I will write a post about pensions. For now, I can say that I was in DB pensions for my first seven years in work and then chose to transfer out. I never had the option of joining a DB pension in the twenty-three years after that.

  8. Heat, light and power are phenomenally abundant that we have taken them for granted. Unfortunately, we can’t ignore the cost which is by any measure still incredibly cheap (compared to say 100 or 200 years ago) – unfortunately since most people spend all of their money (and more) they complain about paying £100 a month for something that is intrinsically precious.
    Take it all for granted – I think so.

  9. You’ve got some cash in the bank. How about putting up a bunch of solar panels? Going hard on insulation? The ROI is probably very similar to you portfolio average.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.