Warning over fixed fuel bills

Gas and electricity prices will rise by a third – adding an extra £300 to the average household energy bill – if government plans to promote renewable and nuclear power are implemented, an adviser has warned.

This forecast, taken from a note written in July by one of the prime minister’s senior policy advisers, Ben Moxham, was published in the media this week.

Although the claim has been refuted by the Department of Energy and Climate Change, energy analysts have confirmed that there is a strong likelihood that investment in renewables will put upward pressure on domestic fuel prices. UK households are already dealing with double-digit increases in bills this year, after companies passed on the rise in wholesale energy prices caused by unrest in the Middle East and the Japanese earthquake.

Average household energy bills have reached £1,000 a year, but increases of up to 18 per cent from the largest energy companies are pushing prices up.

Suppliers have been offering customers the chance to fix their bills for up to three years to avoid any further increases, but experts are divided on whether these fixed tariffs represent a real saving.

Npower’s one-year fixed price is £1,127, slightly less than its average standard plan price of £1,188. But SSE’s annual fixed price of £1,307, which applies for three years, is £150 a year more than its average standard plan bill of £1,152.

Fixed tariffs also mean missing out on savings if wholesale energy prices start falling again – or paying cancellation fees of around £20-£30 to opt out of a deal before the end of its term.

David Hunter, energy analyst at M&C Energy Group, said there had already been some changes in the price of energy that could benefit customers. “There were some major increases to the cost of wholesale energy this spring but, recently, the price of gas has plateaued and the price of electricity has come down a little,” he explained.

But households shouldn’t expect an immediate price cut. Companies buy energy in bulk in advance, which means there is a lag between wholesale and domestic price changes.

Instead of waiting for prices to come down, Emma Bush at uSwitch.com points out that online tariffs are still far cheaper than both standard and fixed options. E.ON’s £982 Save Online 9 plan, for example, is still available – but it may not be for long.

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