What is the best energy deal for me?

energy prices

THERE are now around 30 energy companies supplying energy to UK households, most of whom offer more than one tariff per type of fuel.

That alone means there's a huge range of energy deals to choose from, and despite the best efforts of the industry regulator Ofgem, it can still be difficult to tell which is the best deal for us.

As we point out in our guide to switching, energy is energy - at least by the time it reaches us - so it would seem reasonable to think that the best deal for us is the cheapest available.

But that depends on a number of factors - type of supply, payment method, source of the energy, and how charges are calculated - so what may be the cheapest deal for one household may be a different tariff from the best for their neighbours.

In this guide, we'll explain the biggest factors that contribute to finding the best energy deal for you, whatever your needs.

Payment type

There are two factors to bear in mind here: whether we pay before or after we've used the energy in question, and if we pay after the fact the method we use.

Almost without exception, prepayment tariffs are more expensive than post-pay or standard credit tariffs; those willing to automate their post-pay bills with a direct debit can sometimes benefit from further savings.

Prepay vs post-paid

As we said above, post-paid energy tariffs are almost always cheaper than prepayment tariffs.

This seems somewhat unfair, as households with prepay meters tend to have lower incomes than those with standard credit meters, which can often lead to some tough decisions about whether to top up or not.

The exceptions are for those who have smart meters, or agree to have one fitted. Following the example set by E.On in spring 2015, there are now at least seven energy suppliers who offer smart meter prepay customers access to tariffs that match their cheapest post-pay deals.

Anyone who has a prepay meter and isn't in debt should seriously consider switching to a standard credit meter, or at least looking for a cheaper tariff: the difference between the most and least expensive prepay deal at the time of writing is about £150 per year.

There's more on how to switch, and the available options if that's not possible, in this guide.

Direct debit or cash/cheque?

For those who pay for their energy after they've used it, there are often discounts or lower priced tariffs available for those willing to pay by direct debit rather than cash, cheque or card.

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As long as they're set up correctly - with the right details, and on a day that best suits the customer - they're a far simpler and cheaper way for the energy companies themselves to collect payment, and as long as they're set up to fall on a convenient date, they're much less hassle for customers.

Paying on receipt of the bill does allow customers to check for and challenge any errors before they settle up, but this will need flagging up as soon as possible as if payment doesn't arrive on time for some reason (including a cheque getting held up in the post) some suppliers will charge a late payment fee.

In the past Ofgem have found that the premium for paying on receipt of the bill can be as much as £100, but if paying by direct debit really doesn't suit there are some energy suppliers who charge all their post-pay customers the same, regardless of payment method - they tend to be smaller independent suppliers.

Plan types

There is a dizzying array of tariffs available, and it's possible we'll see a whole lot more appearing in the near future. But if we break them down into different types, it's possible to get a better idea of which features will help us save on our energy bills.

Dual fuel

Not all households need both gas and electricity, but for those that do there can be advantages to signing up for a dual fuel deal, where one supplier looks after both.

The first benefit is convenience - we only have to deal with one company. While we'll still receive separate bills for each energy supply, some companies combine payments, making keeping track of outgoings that little bit simpler.

The other reason they appeal is that they tend to come with discounts: dual fuel customers will often find that these cut their annual combined energy bill by up to £80 (£40 per fuel).

Until recently, the dual fuel discount was one of just two that the energy companies were allowed to offer us; the other is for managing our accounts online.

As a result of the Competition and Markets Authority's investigation into the retail energy market, however, Ofgem's ban on other types of discount is being lifted.

Dual fuel isn't always the cheapest option, although the discount can make the crucial difference for many. But while it's not yet clear what other discounts suppliers will choose to offer, there could be greater incentives to try mixing and matching.

Fixed and capped tariffs

After a couple of years when wholesale energy prices seemed to be dropping considerably, they're on the rise again, which means that those of us on standard variable tariffs could expect to see our bills increase.

At the time of this update, British Gas, E.On, and SSE have promised not to raise prices until spring 2017, giving their SVT customers a little relief - but people on fixed tariffs benefit from the equivalent of a price freeze over a much longer term.

Fixed tariffs work by offering a set unit price and standing charge (when applicable) for a set period of time, usually one to two years, regardless of what happens to wholesale prices or the standard variable tariff during that time.

They therefore offer a certain amount of predictability.

Some people are put off fixed tariffs because that predictability comes with a few conditions. The obvious one is that when other prices fall, fixed tariff customers don't benefit.

Others don't like the fact that many fixed energy plans come with early exit fees, often around £30 per fuel.

Those who move house regularly, or who worry that they might need to, are often dissuaded from cheaper fixed the thought of having to pay extra if they need to leave because of a house move - but many suppliers are happy to let us transfer the tariff to our new home.

Depending on timing, fixed tariffs can seem more expensive than a supplier's SVT; the assumption is that prices are more likely to rise than fall, so the supplier needs to guard against making too much of a loss if that happens.

Although they're quite rare these days, capped tariffs offer some of the best bits from both fixed and standard variable tariffs. While prices may go up, there'll be a ceiling above which they'll never go - and if prices fall, capped tariff customers will benefit from similar savings as SVT customers.

Again, they tend to be offered on fixed term contracts with penalty fees if we want to leave early - and it's worth remembering that while wholesale prices fell by around 30% in 2015, the Big Six only reduced their SVT and capped tariffs by 5% each, and they took their time to do so.

Standing charges

Most of us pay standing charges for our energy, at a flat daily rate. These charges cover the cost of keeping us on the network - from providing meters and maintaining the basic connections, to wider maintenance, sending people to carry out meter readings (whether we're there for them or not) and so on.

The standing charge also covers the cost of schemes like green energy subsidies and providing help for vulnerable users.

Until very recently all energy tariffs had to have a standing charge - even if it was set at zero. But again, as a result of the CMA investigation, standing tariffs are no longer obligatory: Ofgem removed the requirement at the end of November 2016.

But the costs mentioned above still have to be covered, so tariffs with low or zero standing charges have higher unit prices.

Because standing charges apply every day that energy is used, it's only worth looking for a tariff with no standing charge, or a very low one, if we don't use any energy at all for a large number of days per year - at least nine out of every 12 months, say.

The kind of properties this rule of thumb applies to include second homes, static caravans, and separate outbuildings - but not, generally, our main home.

Green energy

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How to get paid for your energy

Green tariffs, where all or most of the energy we use is matched with energy from renewable sources, have had something of a reputation for being more expensive than their conventional counterparts.

But over the past five years, the rules brought in by Ofcom to simplify tariffs by reducing the number of plans any one provider could offer, combined with a focus on price rather than source, has meant that none of the Big Six have offered an explicitly green tariff.

Instead the field has been left to smaller, independent, energy companies, who tend to be cheaper than their bigger rivals for various reasons - and that's meant that green energy has become much more affordable.

In fact, in September 2016, when we compared green energy plans with the SVTs of the Big Six, the average green energy tariff was £6 cheaper than the average SVT over the year.

Smaller energy companies tend to be more affected by wholesale price changes than bigger suppliers, but as more renewable sources are brought online green energy is slowly becoming cheaper - so there'll always be something of a balancing act going on.

The good news is that it no longer has to cost the earth to make sure our energy doesn't cost the earth.

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