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Customers face up to £350 in extra costs at end of fixed term energy deals
Recent research has found that energy customers face extra costs when their one-year fixed term deal comes to an end. When the one year fixed term deal finishes customers are moved onto a variable tariff and as a result, the prices of their bills are rising.
The increase for yearly bills range from £275 to around £350 for the average UK household using one of the major suppliers, known as the big six. In comparison, charges from smaller suppliers were around £30 per annum less.
The additional charges are due to customers being moved onto their energy provider’s standard variable tariff (SVT) at the end of the fixed year term. However, many customers are not aware they are being moved onto these different tariffs so they are sticking with these more expensive energy prices when they could switch to a better deal.
Professor Catherine Waddams from the Norwich Business School and an expert on energy pricing, expressed her surprise at the cost increase to the BBC earlier this month; “Some companies depend on it much more than others, particularly the big six… Some new entrants to the energy market are playing the same game… they also have a very high tariff onto which you default if you don’t do anything at the end of your first year.”
This tactic used by energy companies has been described by Greg Jackson founder of Octopus Energy, an energy newcomer to the London area, as ‘tease and squeeze’. This is where the energy companies entice you onto their contracts with attractive teaser prices for one year at a fixed rate. By doing this, consumers believe they are saving money but what is not usually made clear is that the price will go up sharply once the year has ended.
These SVTs that consumers are placed on vary from company to company (you can see a chart featuring the price increase on the BBC website) and they are rarely marketed because they are always considerably higher than one year tariffs.
Octopus Energy conducted research taking into account energy providers best one year tariff and their current SVT to showcase the difference in price and which companies offered the best deals. After 24 months, 1 year on the fixed deal and 1 year on the SVT, none of the big six suppliers provided the best deal for consumers.
The big six energy suppliers can afford to offer such attractive initial fixed tariffs because a substantial majority of those on their one-year deals will not switch after a year. When they pay these high SVTs they provide the company with sizeable additional revenue which subsidises the very cheap deals of their initial rates.
As a result of these findings, many campaigners and industry experts are calling for more transparency on price comparison websites regarding energy providers SVTs. Whether this is something that will be introduced or not remains to be seen but it is worth keeping an eye on your energy bills.
If you have recently signed up for a cheap rate energy deal, you should make sure that after a year your energy bills don’t start to rise steeply. If they do, you may have been placed on your providers SVT and you may be better off switching providers for a deal more affordable to yourself.