The average household energy bill is already close to £1,000 a year, and with a new round of price hikes currently underway, 2008 could well be the year when the cost of heating and powering your home finally smashes through in to four figures.
Last week, Npower welcomed in the new year by unveiling a 13 per cent rise in its electricity prices, and an eye-watering 17 per cent hike in its gas prices – with some regional prices increasing by as much as 27 per cent. The other major suppliers are expected to follow suit imminently.
The Npower move was the latest increase in what has been a rollercoaster year for energy prices. Scottish & Southern Energy (SSE) was one of many suppliers to up their costs early in 2006, increasing rates in January by 12 per cent for gas and 9.4 per cent for electricity. But these were later followed by headline reductions of 16 per cent in gas costs by all of the bigger providers.
In fact, according to the independent watchdog EnergyWatch, the average gas and electricity user typically paid less for energy in 2007 than they did in 2006. Only Npower customers paid more,around £20 more in electricity and £3 in gas.
The rise in prices has been driven by the increase in the price of crude oil and a 60 per cent increase in coal prices over the past year. And, according to TheEnergyShop.com, wholesale gas prices have continued to rally since the start of 2008.
Suppliers have been accused of profiteering from energy price changes, by passing on price increases quickly to consumers but neglecting to do the same when the cost of wholesale energy falls. Uswitch.com, the comparison site, claims that suppliers failed to pass on cuts worth £177 for every household last year.
"The prospect of being able to raise prices has had suppliers champing at the bit, so it was always a matter of time before one of them made the move," says Tim Wolfenden, the head of home services for Uswitch.com. "Npower has now given the other suppliers the green flag they've been waiting for. The coast is clear for a general price hike and energy bills can be expected to top £1,000. Consumers are going to be in for a rough ride this year."
That's the bad news. The good news is that there are still ways to ward off the effects of those increasing costs without digging up the road outside your home or getting used to sub-zero temperatures in your living room.
Switching
The big debate is whether to sit tight and see what price changes the "big six" suppliers inflict, or whether to bite the bullet and switch now. Switching energy suppliers could cut your bills by up to a third, especially for households who have never switched before. According to new Uswitch.com figures, consumers can save up to £325 on their annual electricity and gas bills by choosing a different supplier.
Price comparison sites such as Uswitch.com, Moneysupermarket.com and Simplyswitch.com, as well as specialist sites such as Energylinx.co.uk, can all provide you with a league table depending on your needs. A full list of suppliers in your area is available from Energywatch.org.uk. Changing suppliers usually just means making a few phone calls. You may even find that your new supplier is willing to pay you a cash incentive to switch.
Before you do, though, find out whether your new supplier has a high number of complaints, and watch out for any extra or hidden charges. The golden rule is that "dual fuel" deals – where customers buy both their gas and electricity from one supplier – tend to be the cheapest. Paying by direct debit is also essential, as many providers levy an additional charge for customer who don't.
Finally, don't relax once you have made the switch. Be sure to check on a regular basis that your tariff is still the most competitive.
Price caps
Capping the price of your energy is another attractive option in the current market climate. Suppliers have traditionally offered a deal for consumers to fix or cap energy prices over a specific period – usually a few years – in return for the consumer paying slightly above the standard energy unit rate at the time. But move quickly if you are planning to go down this route. With significant price hikes ahead, demand for these deals has been high, and they are quickly becoming harder to get your hands on.
Scottish Power is the latest supplier to close all its price-fixing products this week. In fact, as we went to press, just one price cap deal was left – E.ON's Price Protection 2009, fixed until 1 October 2009. At its standard rate, an average household in London would pay around £881.52 per annum. In contrast, the same household on one of the best current tariffs – British Gas Click Energy 4 – would pay annual energy bills of around £739.66.
Energy Use
We know that turning off lights and only boiling the water we need can reduce both our energy costs and carbon emissions. But once you've turned your plugs off at the wall, removed phone chargers after use, stopped using your tumble dryer, and turned down the thermostat and washing machine temperature by a few degrees, there are still other measures you can take.
Simply placing a "jacket" around your boiler could reduce bills by £20 a year. Upgrading your boiler or even your whole central heating system, though pricey, could save a packet over the long haul. Insulating your loft space, adding cavity wall insulation, and putting in double glazing can also be expensive – but at today's prices, you could recoup the costs within 10 years. When you replace electrical goods, look for the energy saving logo. An efficient fridge freezer will cut £40 off your bill.
There are also a number of little-known grant and incentive schemes available, depending on your financial situation and where you live. The Government provides grants of up to £2,700 for households to improve their heating and energy efficiency.
Most local authorities have similar programs. The Energy Saving Trust (www.energysavingtrust.org.uk) has a comprehensive list of available funding and discounts, or contact your supplier.
The Government's Energy Efficiency Commitment means that energy suppliers with a certain number of customers operating in Great Britain are obliged to achieve targets for improving home energy efficiency. The suppliers therefore provide a range of offers that significantly reduce the cost of installing energy efficiency measures. And you can take up offers from any of the energy companies, regardless of who supplies your energy.
Meanwhile, if you qualify, don't forget to claim your winter fuel allowance.
The green way to cut bills
* Replacing an old dishwasher with an Energy Saving Recommended (ESR) version could save you £16 per year and £145 over its lifetime.
* If all the UK's dishwashers were upgraded to ESR, in a year we could save £80m from electricity bills and 400,000 tonnes of CO2.
* Replacing an old washing machine with an ESR version could save you £80 over its lifetime.
* If all the UK's washing machines were upgraded to ESR, in a year we could save £84m from our electricity bills and 440,000 tonnes of CO2.
* Replacing an old fridge with an ESR version could save you £16 per year and £145 over its lifetime.
* If all the UK's old fridges were upgraded to ESR, in a year we could save £145m from electricity bills and 570,000 tonnes of CO2.
* Replacing an old freezer with an ESR version could save you £26 per year and £200 over its lifetime.
* If all the UK's old fridges were upgraded to ESR, in a year we could save £275m from electricity bills and more than a million tonnes of CO2.
Do it yourself
Another, increasingly popular way to cut your energy bills is to generate your own energy. Known as 'micro-generation', this really is a long-term commitment for homeowners, and the cost takes many years to recoup. But grants are often available for it, providing that the product and installation are certified and recognised by the grant board.
The savings on your energy bills can be substantial. For example, a biomass-powered boiler, fuelled by organic materials or even industrial and commercial products, costs between £5,500 and £12,000 to install – but could save you around £200 a year on your bills and around 8 tonnes of C02 per year.
A small wind turbine like David Cameron's is another option, particularly in urban areas and very remote locations. Assuming that planning permission is not a problem, a roof-mounted wind turbine could cost as little as £1,500. Solar photovoltaic panels are fairly expensive to produce, but costs are dropping as the technology improves. If you find a spot for the panels within 90 degrees of the sun's rays, you could be saving up to 1.1 tonnes of CO2 a year, and this could mean £150-£200 off your electricity bill (albeit for an initial outlay of between £5,000 and £8,000). If you're really successful you could even start selling your energy back to the national grid.
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