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FEATURE: Energy prices set to soar

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Written by:
09/01/2008

With Npower hiking energy prices, other energy suppliers could be set to follow suit. Yourmoney.com surveys the utilities landscape

With many of us still counting the cost from Christmas, the last thing you need is any unwelcome increases in your monthly outgoings. However, the commuters among you will already have faced fare increases at the ticket booths and now energy suppliers are set to raise their prices in the wake of Npower’s decision to increase gas and electricity rates. 

The company, which is the UK’s fourth-largest energy supplier, has increased average gas prices by 17.2% and electricity by 12.7%. This means its average dual-fuel customer will now pay more than £1,000 a year. Npower blamed the price rises on soaring wholesale costs, which have risen by 66% for electricity and 60% for gas since last year.

The situation has become so high-profile that Chancellor Alistair Darling has requested a meeting with energy regulator Ofgem to discuss the reasons behind the price rises and their implications, expressing particular interest in the relationship between wholesale price movements and the feed through to domestic retail prices.  

Giuseppe Di Vita, managing director of Npower’s residential business, says: “The decision to raise prices was not an easy one. We always try to protect our customers for as long as possible but sadly higher energy prices are a fact of life. Npower is not alone in facing this higher costs, and we expect other suppliers to follow suit very shortly. Anyone struggling to pay their bills, regardless of the time of year, should get in touch immediately.”

The wider picture

However, Npower should not be portrayed as the villain of the piece and widespread increases are expected across the utilities sector. British Gas’ parent company Centrica revealed in December that it was increasing the price of its market tracker tariff, which mirrors movements in energy market prices. It warned that the energy industry as a whole faces a “difficult environment in 2008”.

So why are prices on the up? A number of factors affect energy costs, but perhaps the most important driver is the declining production of gas from the North Sea, forcing the UK to import more of its total gas supplies. The wholesale price of gas, which is linked on the continent to the price of crude oil, has been driven higher by record oil costs and recently broke the $100 a barrel barrier.

The Government encourages homeowners to switch to cheaper suppliers and plenty of organisations exist to help consumers find the best deals. Tim Wolfenden, head of home services at uSwitch.com, says households can limit the damage to their budgets by using energy more efficiently and making sure they are on the cheapest plan. “Online plans are currently, on average, £143 cheaper than suppliers’ standard plans and are likely to remain better value even after prices go up,” he advises. 

Although the majority of suppliers are expected to increase their rates, it still pays to shop around to find the best deal. 

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