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Prices going up by up to 65% - why are renewal prices so much higher this year?

  • 19 August 2021
  • 37 replies
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My Smart Energy contract with Ovo comes to an end soon so Ovo have sent me opportunities to renew.  My last years energy worked out at an average of £73 a month.  The new 1 or 2 year fixed deals offered are both  £117 a month.  That’s a 60% increase.

So I thought I’d look a bit further into the maths to see exactly where the increase is coming from.

Comparing the old tariff with the new:-

Standing charge electric - up 27%

Standing charge gas - up 54%

Kwh electric - up 43%

Kwh gas - up 65%

Wow!

I’ve completed the pop-up window that appears each time I log into my account, to ask someone from Ovo to call to discuss renewal.  Still waiting for the call but looking forward to the explanation for such huge increases.  I know the cap has gone up but…..

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Best answer by Jeffus 19 August 2021, 21:43

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It’s not about the price cap, it’s mainly wholesale prices and current tight margins in generation. Wholesale gas has tripled in the last year which has meant electricity has doubled. There’s been a jump in gas tariffs in the last few weeks by several suppliers. The likelihood is that there will be further price increases and so if I had to choose a new tariff right now, I’d still go for a fixed tariff rather than variable.

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But why have the standing charges increased byup to 54% too?

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It’s also worth noting that the price caps which exist are more relevant to Variable Rate tariffs and Prepayment tariffs than to Fixed Rate tariffs. You’ll almost always hit a higher rate anyway when you renew a Fixed Rate deal, because you would have previously locked in a lower rate that was available at the time and you’re now locking in what’s available now.

Also worth mentioning that the Better Smart Energy tariff is more heavily subsidised than the regular Better Energy tariff since OVO can claim back the difference from Ofgem as a result of the mandatory Smart Meter upgrade on that tariff. It makes for an unfair comparison between what you can get with Better Smart Energy now and what you’ll get offered with Better Energy or the OVO Member Special next year.

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sounds like obscuration. 

65% increase?  how much has the price cap gone up by? 

and why the standing charge increases?

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@Bill Portland As @Blastoise186 has alluded to, the price cap is mostly irrelevant for the types of tariff you are looking at. Unfortunately the days of sub-15p single rate electricity are probably gone for the time-being and sub-3p gas is probably gone for good. Distribution costs have also risen.

Userlevel 2

i’m aware the price cap is not particularly relevant in this case but it has gone up by a relatively small 12% ish.

i’m not hearing anything that justifies 65% increases, and nothing to justify any more than inflationary standing charge increases.

we’re not discussing whether the increases are 5%…., or 10%.,,,,, or even 20%.  we’re seeing 65%!

 

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it’s mainly wholesale prices and current tight margins in generation. Wholesale gas has tripled in the last year which has meant electricity has doubled.

That's where increases above 50% come from.

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These are big increases to your predicted monthly payment, @Bill Portland - and as mentioned above, this Ofgem website page shows what’s driving this - wholesale cost increases. It’s really tough on energy bill payers. If anyone reading this is looking for advice and support, we’ve got a page offering help here

 

It’s important to bear in mind @Bill Portland, that if your renewal is coming up, that means your fixed 12 or 24 month plan is near its end. You’ll want to look at what wholesale prices were 12 or 24 months ago to get an idea of the scale of the increases. From what I can see (don’t take my word for it though) gas wholesale prices have gone up by over 300% between August 2020 and May 2021. I think they’ve gone up more since May. I can’t find the right chart on that Ofgem site to confirm yet. Anyone know of another resource to see this? OVO have made a guide on wholesale energy prices, here

 

Natural gas is one of the villains here from what I understand. In some of the debates around these increases I’ve heard it called out that if the UK were to transition away from fossil fuel and invest in renewable energy generation, storage and smart grid technology, we’d reduce our reliance on fossil fuel imports and fluctuating wholesale prices.

 

@Bill Portland I appreciate that’s not going to help you as you decide on your renewal options. Please refer to our support article here, and remember to keep an eye out for renewal options on your online account.

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These are big increases to your predicted monthly payment, and as mentioned above, this Ofgem website page shows what’s driving this - wholesale cost increases. It’s really tough on energy bill payers. If anyone reading this is looking for advice and support, we’ve got a page offering help here

 

If you are looking to renew now after a fixed rate tariff you are seeing the impact of 2 ofgem price cap increases. The price cap is revised every 6 months. The cap has been mainly driven over that time by the gas price as others have said. 

 

As well as the gas price there are other things that have driven the increase. The cap and all bills have increased a bit due to the suppliers covering some customers getting into payment difficulties.

 

There was also some issues with generation. This included a period of low wind production, some issues with offshore wind connections, fall in nuclear production, increase in energy consumption for a period due to covid etc. It has not been a great period generally. 

 

Ofgem have stopped updating the average domestic consumption figures as they are uncertain if an increase in domestic energy consumption is permanent.

 

The graph below shows average electricity demand for each year. Look at the fossil fuel line which is mostly from gas. 

 

 

The demand for gas from Asia will push up prices I think as will the push from coal to gas. We may see a lot more volatile prices before the world has time to build up wind and solar etc... 

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...

Standing charge gas - up 54%

...

Just to bump this specific point - I don’t see any rationale other than

“well, historically and on average, standing charges for gas (electricity) have tended to represent a fraction X_gas (X_electricity) of the total charge for supplying gas (electricity), and this increase will maintain that fraction...”

(the fractions vary from one consumer to another, and what I suspect the suppliers of wanting to maintain is the average over all their customers).

Over the years, I’ve noticed that sometimes gas and electric standing charges have been identical, sometimes they haven’t. But I don’t remember them being as different as they will be after these price increases.

I’d be really interested to hear an explanation from Ovo (or any supplier, for that matter) of why the “fixed” costs of supplying gas/electricity have changed so differently. And if they haven’t, well, why increase prices in this way?

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Over the years, I’ve noticed that sometimes gas and electric standing charges have been identical, sometimes they haven’t. But I don’t remember them being as different as they will be after these price increases.

 

Out of interest, how different are your electric and gas standing charges in pence? 

It seems (for my region) that on some tariffs they are almost equal and vary by a couple of pence (both ways) on various fixed tariffs from various suppliers.

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Out of interest, how different are your electric and gas standing charges in pence? 

It seems (for my region) that on some tariffs they are almost equal and vary by a couple of pence (both ways) on various fixed tariffs from various suppliers.

I’m on Ovo’s 2 year fixed plan (ending in 3 months) and that’s

27.40 p/day (gas), 27.40 p/day (electric).

Other examples I have recent experience of (both Ovo) were

20.87 p/day (electric only), and

24.79 p/day (gas), 23.33 p/day

Those are all excl VAT, and they are/were both fixed rate but not in the same region.

Userlevel 2

Re standing charges, My electric standing charge is increasing from 17.9p to 22.76p (+27%)

My gas standing charge is increasing from 16.16p to 24.92p (+54%). I don't know how either is justified. 

 

Re usage charges, I can see that gas and electric wholesale prices are soaring, but the price cap increase is very low compared to the actual increases OVO (and presumably others) are applying. In actual fact, switching to Ovo's SVR is going to be cheaper for me, than either of their offered 1 or 2 year fixed rate deals. 

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In actual fact, switching to Ovo's SVR is going to be cheaper for me, than either of their offered 1 or 2 year fixed rate deals. 

However, variable rates being variable, that price advantage will, presumably, evaporate when the raised cap comes into effect come October.

My impression is that, even though the raised cap isn’t effective yet, the fact that it will be in effect for most of the duration of any fixed price deal that is offered now means that any fixed price deal offered now doesn’t need to be cheap to be competitive, because the apparently cheaper SVR offers will suffer price increases within a couple of months.

(Hopelessly convoluted way of putting it, but perhaps you see what I mean, @Bill Portland?)

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Re standing charges, My electric standing charge is increasing from 17.9p to 22.76p (+27%)

My gas standing charge is increasing from 16.16p to 24.92p (+54%). I don't know how either is justified.

If it's any consolation, your previous standing charges were low compared to most tariffs. 

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just to throw into the mix, sorting through my mums house  the other week, found an electric bill from 1982, 32p a kwh! If my dodgy internet searches are accurate, that's an equivalent of £1.15 a kwh in todays money

Until I read that I thought electricity was expensive, as a child I remember frequent power cuts sitting around the gas fire in the evenings for light… Now I’m thinking about it, I think in the last decade we’ve had one power cut. And the nice thing about that was all the neighbours went out in the street confused by what to do without being able to power anything with the internet attached.

Not saying I want energy to go up, but sometimes its interesting to look how times have changed

I might not of worked that out right, but still, I was shocked to see the prices back then!

Can’t remember what the standing charge cost was, that seems to of doubled in the last 2-3  years across the board though

Interestingly seeing demand has been slowly going down

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https://www.gov.uk/government/statistical-data-sets/historical-electricity-data has rather different figures… they have 4.324 p/kWh “average net selling value of electricity to all consumers” in 1982 prices, and naively using RPI would involve a factor 305/82.5 for inflation between 1982 and 2021, which leads to 16 p/kWh. Remarkably, that seems like hardly any change at all.

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https://www.gov.uk/government/statistical-data-sets/historical-electricity-data has rather different figures… they have 4.324 p/kWh “average net selling value of electricity to all consumers” in 1982 prices, and naively using RPI would involve a factor 305/82.5 for inflation between 1982 and 2021, which leads to 16 p/kWh. Remarkably, that seems like hardly any change at all.

I should of taken a photo of it, been recycled now, I remember reading 32p/kwh and being shocked though, ah well. I was thinking we were getting a good deal for a bit but I must of misread it! Maybe it was a special rate for people who lived in council estates, I know my dad would never pay bills until at least the third final demand notice came through…

 

Does seem nuts that average price seems to be around the same as today. In my head everything is getting cheaper apart from cars, rent, houses and public transport 

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Received email from OVO today regarding their prices effective 1st October. Wow, huge increases, as expected.  I know these increases will be reflected across the industry and i'm surprised the media hasn't yet picked up on the massive increases that will surely put many people into energy poverty.

I know that gas and electric bulk prices have increased by huge amounts, but I'm still puzzled as to why standing charges are increasing so much as well.

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It’s worth noting that any markup beyond the market rates isn’t pure profit for OVO… Or anyone else for that matter. Even when the rates increase, it’s partially to account for increased costs of all types while still trying to maintain a reasonable profit margin. And administrative/business costs do eat away at some of that.

But it’s also worth remembering that with a Variable Rate tariff, OVO can’t really buy energy in way advance on your behalf because they can’t know whether you’re going to leave tomorrow, so both you and OVO are effectively gambling with whatever the live market is offering in the short-term rather than playing it safe by smoothing it out over the long-term.

Ultimately, one of the easiest ways to escape this situation is to switch from a Variable Rate tariff to a Fixed Rate tariff - ideally before the deadline of the 1st October. It’s not really that interesting content for the media anymore, since it happens so often and repeatedly covering it gets boring and these days I only usually see it come up on the more clickbait type media and terrible chumbox/chumbucket advertising campaigns at most. Other than that, most mainstream and reputable media outlets appear to ignore these stories unless there’s actually something more significant to make it worthy i.e. more than just the usual twice yearly price changes across the whole market.

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Still no reason for massive (60%) increases in standing charges. And it's the fixed rate tariffs that are soaring too, over 70%.  Not many recent news stories mention that.  In a few months, when bills hit the media's doorsteps, I think we'll see a reaction. 

You say an "My Account" online that when my "Better Energy" plan expires on 29 October, I should renew my current plan to a special deal for ME! A "1 yr fixed loyalty" at a projected cost of ££127pm / £1,524 pa. You're 'avin a laugh? That's 58.2% more than the £963 pa you say I'm currently paying

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Hi there @alexmac .

I think I know what you mean there. Firstly, it’s worth noting that you can’t really compare the offers on the table now against what was offered last year, since that creates a bias which artificially inflates the comparisons. What you really want to look at is the tariff rates as well, since this gives you a better picture of what’s available.

The loyalty deal isn’t always the best one, but you can also choose to stay on Better Energy or do the 2 Year Fix deal. Sometimes those deals work out cheaper than the loyalty offer, sometimes they don’t. It’s also account specific, so someone else will likely get a different offer to you. It all depends on how you roll the dice really.

The other thing to note is that wholesale energy prices have increased across the entire market over the last year and this is ultimately passed on. I think most of the 60% difference can be attributed to that factor.

Userlevel 2

Still no explanation for the huge increases in the standing charges. 

 

BBC's Money Box episode this weekend headlines "Gas and electricity prices set to rise by 12% for millions of customers". What planet are these people on to think that 12% is the headline number? 60% is more likely! 

Userlevel 2

It is noticeable that nobody from Ovo has made any attempt to justify standing charges increases as opposed to consumption/price of energy increases.

Wholesale gas pricesgo through the roof, so I do expect my December renewal to have much higher per kwh costs. I do NOT expect standing charges to increase, and certainly nothing like the huge increase @Bill Portland has noted.

Come on, @Tim_OVO - how is that justifiable?

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