Cutting energy prices

Cutting energy prices

Why not now? If wholesale gas, oil and coal prices have already fallen, shouldn’t we be seeing lower domestic bills in January rather than having to wait until April when the winter will be over?

It looks like a good point but the fact is that one of the biggest reasons why tariffs haven’t fallen is because we have endorsed a system which prevents it.

Regulated energy companies are expected to set prices for longish periods - typically around a year. They can adjust them at shorter intervals but doing so is expensive because it involves everyone formally being notified of the change in advance. While the companies initially have to cover those communication costs, ultimately the consumer will be forced to pay them.

In any case it’s believed that consumers don’t want to see prices see sawing all the time. They want visibility on charges which requires the energy companies, which are exposed to fluctuations in wholesale market, to hedge. But the act of hedging or buying ahead commits the companies to paying prices which in a falling market may look high. They can only access the lower wholesale costs when their hedges expire. And that’s what’s happening now. Hedges are coming to an end.

But here’s an heretical thought. Why do we need to have what are effectively fixed prices? Your typical power bill comes to around £600 a year. About half of that relates to wholesale fuel costs. If those costs were to rise by twenty per cent which is a big jump, and the effect on bills to be immediate, you would face an increase in your monthly direct debit of about £5 or about £1 a week. Is that a price shock you couldn’t sustain.

Remember hedging doesn’t insulate you from rising costs. It just postpones the pain. If wholesale prices rise and a regulated energy company fails to recover its costs through existing charges, it just waits and retrieves the shortfall in the next tariff period. You can’t escape higher energy charges.

And here’s another thought. Annual bills for home heating oil will be far greater than yearly charges for power. If If households can cope with fluctuating costs for the former why not electricity users.

In my view hedging particularly in electricity brings you a benefit you don’t need at a cost you don’t want

Last updated on 11/05/2016

Key Information

Home heating costs compared

Switching from one form of central heating to another is a challenging decision. Should you stay or should you go. It’s worthwhile checking how different fuels compare in price though past results are no guarantee of future performance.

Compare Prices

Our calculator will assist you search for the tariff that suits your needs. Just answer the questions to find out how suppliers are ranked on cost. Then check what bonuses and penalties may apply. But before switching, you should read our terms and condit


Electric cars, solar panels, ground source heat pumps and wood burning stoves. The ways to cut your contribution to global warming are many and growing. What should you do and how much will it cost you? Click here for advice, tips and debate.

Contact Us

How to get in touch

  • Comment and reaction is welcomed by If you identify any errors, your messages are especially welcome. But if you simply disagree with the judgments expressed, please get in touch too by filling out the contact form as shown. We will attempt to get back to you within five working days with a response.

Send us a message