British Gas thinking long term on energy savings

energy efficiency©

ENERGY customers could save more than £300 on their annual energy bills according to two separate recent studies - but there's a big difference in how they're expected to make those savings.

Independent energy supplier First Energy say customers could save that much by switching to a different provider - a move that has made a quickly noticeable difference to thousands of households.

British Gas, however, are putting the emphasis on improving energy efficiency, adding solar panels, and making use of smart metering to drive savings - but they're looking several years into the future.

Instant fix versus planning ahead

It's not all that difficult to see why the two companies have taken the different approaches they have when it comes to getting the money saving message out there.

First Utility are the biggest of the new breed of small independent suppliers who have seen customer numbers increase sharply over the past year or so, with around 900,000 customers.

They're clearly aiming to get more people to consider them when they're thinking of switching energy supplier - and while they do offer a good one year fixed price deal, it's worth noting that their standard variable tariff isn't that much lower than those of the Big Six.

British Gas, on the other hand, are the biggest - and most expensive - provider in the UK, supplying around 11 million households with gas and electricity; customers on their standard variable tariff can expect to pay an average of £1,075 a year, even after two price cuts last year.

It's not surprising then, that British Gas's approach to saving on our energy bills makes no mention at all of shopping around. What's more, the savings they're talking about will only be possible some years down the line.

About £100 of the £300 in savings they suggest are possible come from fitting both electricity and gas smart meters (as well as a Hive heating controller) - which the Government want installed in all homes by 2020.

Then there's the fact that the biggest single saving they suggest can be made - fitting solar panels, which they estimate would cut bills by £104 - just isn't possible for many householders.

graph showing effect of adding each energy saving measure

Source: British Gas / DECC / CEBR

Let's be clear: we're not saying that British Gas are wrong to draw attention to the kind of savings that come from improving energy efficiency.

It's well known, after all, that UK housing stock is some of the least energy efficient in Europe, and it's often the homes that can least afford it that are least efficient.

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But many energy providers in the UK are obliged to offer help with energy efficiency measures, and the bigger suppliers must also offer assistance to their most vulnerable customers in the form of the Warm Homes Discount.

And beyond that, the way British Gas have responded to a recent change in the rules surrounding transparency in pricing has raised questions about how committed energy suppliers are to helping us save.

White label

Since last October, energy companies have had to include details of the cheapest energy tariff they supply - regardless of the brand it's sold under.

The "white labels" supplied by some of the Big Six companies have historically offered the same product - also using the same sales and customer service teams - at cheaper prices.

That meant that British Gas and SSE - who supply M&S Energy - were suddenly obliged to tell their customers that there were better deals to be had from someone else.

Ofgem hoped this would lead to more price transparency - but just like their efforts to simplify energy pricing by limiting the number of tariffs each supplier could offer, the move has, almost predictably, backfired.

On December 30th, Sainsbury's Energy withdrew two of their fixed rate tariffs - the Fixed Price December 2016 and Price Promise December 2016 tariffs, each of which could save the average British Gas customer at least £200 a year.

And although Ofgem say they want white label suppliers to have more freedom regarding setting their own prices, the reality is that most work in partnership with their parent company to set tariffs.

It looks very much like this has been the case with Sainsbury's Energy, as all four of their tariffs now match exactly the prices of those offered by British Gas.

Real terms prices

While consumer groups are understandably upset by such developments, the Government say energy bills are genuinely decreasing - for the first time in recent years.

Figures released by the Department for Energy and Climate Change in December suggest that in real terms, domestic electricity bills fell by 1.4% from the third quarter of 2014 to the same time in 2015, and gas bills fell by 6.2%.

The Government say the reduction in gas bills is almost all the result of last year's price cuts; worth around £37 per household. By comparison, the average electricity bill dropped by just £8.

Lower wholesale costs have helped reduce prices a little, as has increased scrutiny of prices brought about by a CMA investigation and anger over the high profits announced by several suppliers.

Thinking long term, as British Gas are encouraging people to do by installing efficiency measures and solar panels, will be crucial if we're to tackle future energy demands as well as rising prices.

But while the number of us switching energy supplier is increasing year on year, it's still very low. The CMA say that around a third of households aren't aware it's possible to switch tariffs or suppliers, and a third have never even thought about it.

So if large numbers of us won't switch energy supplier to make significant and almost instant monthly and yearly savings, what chance is there that anyone but the most deeply engaged customers will act to make the kind of savings British Gas are talking about?

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