Co-op Energy is the first big supplier to announce they are getting rid of their standard variable tariffs for customers who are on a fixed-deal.
Co-op Energy customers will now save around £100 per year by not being automatically put onto a standard variable tariff once their fixed-rate tariff has ended. The new alternative will still see consumers pay up to £250 more than if they were to switch, but this action from the UK energy company is a potential step in the direction of a fairer and a more open market.
As is the case with many energy providers, once a fixed-rate tariff has ended, customers will automatically be switched to a more expensive tariff. A lot of customers are either unaware or simply do not find the time to change tariff once their fixed one has ended, leading them to pay excessively more than they should be, were they to switch.
Despite energy companies being well within their rights to do this, it is a topic that has brought about a whole lot of controversy.
In response to this and decisions made by the government to give industry regulator Ofgem more power by capping standard variable prices, several of the ‘Big Six’ have vowed to follow in the Co-op’s footsteps. Even though this action is rather enforced, it still brings positive news for consumers in an industry notorious for not being transparent and as open as it perhaps should be.
What is a standard variable tariff?
This is the default tariff that customers are automatically transferred to when either their current fixed-rate tariff has ended or when they move into a new property and are yet to change provider from the previous occupant. By switching from a standard variable tariff, savings of around 30% can be made.
What is a fixed-rate tariff?
A fixed-rate tariff is where prices are guaranteed for you for a certain amount of time; usually 12 months. Depending on how the prices of energy alter throughout the year, it will more than likely save you money, but essentially you are gambling that energy rates won’t fall below what your fixed unit rate will be.
Can you end these tariffs before the contract is up?
Yes. You can end a tariff before the duration of the contract has ended. However, companies will impose penalties called exit fees. This means if you do prematurely terminate your contract, an exit fee per fuel will be incurred. Don’t be alarmed, this sounds more threatening than it perhaps is. Exit fees are far from extortionate and can even be avoided all together if you’re moving home and let your energy supplier know in advance.
Co-op Energy has said; ‘We write to everyone approaching the end of their fixed tariff at least three times before it expires to encourage them to switch to our best-priced tariff.
‘This ensures that customers who have chosen a fixed tariff in the past get the peace of mind that the price they pay on their new tariff will currently be fixed until May 2019.’
Last winter, Ofgem data claimed that 20 million households were losing out by remaining on energy companies’ standard variable tariffs. Npower were the worst culprits, charging customers up to £261 more per year for not choosing a fixed-rate tariff. Incidentally, Co-op Energy had the second biggest difference between the two types of tariffs, with those customers on a standard variable tariff paying an extra £245 per year.
In theory, the new regulations will have a huge impact on SSE and British Gas. The two ‘Big Six’ providers have some of the highest proportions of customers on a standard variable tariff, meaning they could suffer huge exoduses as consumers seek cheaper alternatives.
Graphs displaying the average standard variable tariffs and the cheapest average tariff from each supplier – link here.
What does this mean for the future of the energy market?
This exposure by Ofgem and the subsequent grip on energy companies and what they can charge for their standard variable tariffs should educate a wider range of customers and make them more clued-in to how their providers work. If people are aware of this (albeit legal) exploitation when they are planning their energy contracts, they will undoubtedly avoid paying more and seek to save money elsewhere.
As for energy prices in general, the law changes will save more than a few customers, who by default would have gone to standard variable tariffs, money. It will not reduce energy prices though, and if anything, providers could even raise prices of their other tariffs to counter the caps imposed.
If you want to seek cheaper alternatives for your energy supply, or you believe you are on a standard variable tariff and want advice on what to do next, get in contact and use our free service by filling out the form below. We will then get in touch and could have you switched in one quick call.