The Big Energy Switch Swindle - Part 2

Last week I posted about The Big Switch, a reverse auction for domestic energy being organised by Which and 38 Degrees.

I have to admit that my prediction was wrong, that suppliers would offer discounts, probably short term in nature and at the expense of other customers. But I was correct that the auction would make little difference for consumers.

The winner was Cooperative Energy which was £6 per year cheaper for the average user than the next lowest tariff, however the tariff is only available to the first 30,000 applicants out of around 280,000 that signed up for the Big Switch. The remainder will be offered the second place tariff, which is from EDF and has been available on the open market for several months. A post on the Which website also indicate that the winning coop tariff is also available on the open market.

I'm sure some consumers who participated in the big switch will see significant savings but they could have got them at any time. In fact, the Big Switch has delivered no new benefits to consumers.

The Energy and Climate Change Secretary, Edward Davey has been quoted a saying that he wants to see more schemes “enabling consumers to club together in this way to buy their energy, cutting out the hassle of
shopping around and switching and helping households get a better deal for their gas and electricity.” Evidence that he doesn't have a clue and that the government has no intention of intervening in the failing energy market.

At this time there is little information on the winning tariffs, although average standing charges and unit rates have been posted. What has been made clear is that those not paying by direct debit, including those without a bank account will be charged almost an extra £100 per year based on average use and the tariffs don't appear to be open to those with prepayment meters, thus the people suffering the most from high energy prices will not benefit. There are also regional variations in the tariffs, therefore you may have to pay more depending on where you live.

The result isn't really surprising. Energy differs from most commodities in the infrastructure required to deliver it, whether cables or pipes, and measurement of how much is used. For each customer that switches supplier as a result of the big switch, the energy company still has to run credit checks, set up individual accounts, read meters and issue bills giving limited savings to the suppliers from a group switch compared with many individuals. By contrast if your street gets together to bulk buy transportable commodities, such as a truck load of toilet roll our baked beans, the supplier can discount this based on the costs he saves by processing a single large order with a single bill and delivery rather than lots of smaller ones.

One of the big problems with such a powerful group of energy companies, untouchable by consumers, protest groups and government is that they have no real incentive to cut costs for the long term, especially the volatile price of fossil fuels. When investing in new generation they will invest in power stations with greater cost certainty in terms of planning and construction, that is gas power stations which have lower risk during the planning and construction than wind farms or nuclear power stations.  The burden of future uncertainties, such as the price of gas, can be passed on to the consumer with impunity. It follows that the continued dominance of fossil fuels in the energy supply mix is bad for the environment and we, the public, will be left to pick up the cost of mitigating against the effects of climate change.

There are no easy answers to these problem. Schemes like The Big Switch are clearly not the answer. The Regulator and Government are not the answer. The answer lies partly in greater efficiency in the home to lower consumption and hence energy bills, but there are limits to what is achievable.

One method for groups to see real and lasting benefit from collective buying power could be through buying the means to generate their own energy, such as a community wind farm, solar collectors or geothermal heating systems.  This would reduce the dependence on the major energy retailers, putting power literally back into the community.  There are already some good examples of this, mostly from small isolated communities where the benefits of locally generated power is more tangible.

Related Links:
The Big Switch
The Big Switch Ts & Cs

Related Posts:
Energy Market Reform
The Big Energy Switch Swindle

The Big Energy Switch Swindle?

You may be aware of The Big Switch, a reverse auction being organised by campaign groups 38 Degrees and Which. you can sign up here to participate in the event which allows you to switch to the winning deal if it suits you.  You are not committed to switching but if you don't preregister you can not participate.

I have a few issues with this approach:

To register you need to provide your personal details, some of which will be passed to the energy companies participating in the auction. The example of such information is your meter numbers.  The energy companies will be able to use this information to assess how many new customers they may gain if they win the auction or how many existing customers they may lose (and how profitable or otherwise those customers are and hence decide how keen they are to win. From the energy companies perspective, this is little more than a marketing exercise.

A closer look at the terms and conditions of the offer show that there are no guarantees, prices may fluctuate at  any time after switching and the savings illustration that you will be given is meaningless.  In effect you are taking a gamble just the same as switching at any other time and the energy companies can give low prices which are, in effect introductory discounts which can be recouped at a later time through tie ins and higher future unit rates.

If my perspective in the previous paragraph is incorrect, how will the energy companies maintain their healthy profit levels? By charging more to other customers who have not participated in The Big Switch.  The latest figures on the website show that 286,000 people have registered to participate which sounds a lot but is around 1% of the customers of the big six energy companies. Those most in need of reduced energy costs, including the elderly and other vulnerable people, do not necessarily have access to this type of online deal and those with prepayment meters are normally excluded from the best deals. In fact the Terms and Conditions state the personal information may be used by the energy companies to determine whether the energy companies will allow individuals to participate in the scheme.

It is not clear what benchmark will be used to determine the winner so it may be that, of the 286,000 participants, some would save and others wouldn't depending on their consumption levels and mix of gas and electricity used and the supply terms and conditions.

A better arrangement could have been one where Which/38 Degrees set the conditions for the energy companies to bid such as that the deals are open for all, regardless of payment mechanism, that there are no lock-ins and that there are restrictions on how much and when prices can vary.  The energy companies would then price for supplying energy under standard terms rather than using small print and future price rises to pay for loss-leaders.  This would also put more of the risk  back on to the energy company that make the big decisions such as future energy contracts and mix of generation types. Currently customers pay the price of these decisions whether good or bad.

The fact that the big energy companies are participating is a sure sign that they do not expect to lose much revenue over it, in fact I'm sure they see it as a positive Public Relations exercise.  Meanwhile those in most desperate fuel poverty will see no benefit.

Are you taking part in The Big Switch? Will it save you money? Will it change the domestic energy market?

Or is it just another chance for the Big Six to pull the wool over our eyes and get some good press coverage?

Related Links:
The Big Switch
The Big Switch Ts & Cs

Related Posts:
Energy Market Reform

And for the follow up: The Big Energy Switch Swindle - Part 2

Glasgow Council Election 2012 - Fuel Poverty

Households in fuel poverty have been defined as those which spend more than 10% of the household income on fuel for heating, lighting, cooking, etc. The particularly cold winters of 2010 and 2011 combined with record high gas and electricity prices have pushed a greater number of households in to fuel poverty. Increased unemployment and pay freezes have also caused an increase in the number of households affected.  Local authorities can not decree the weather, nor can they influence energy prices but they can provide favourable conditions for employment to help move people out of fuel poverty, although this doesn't really get to the heart of the matter.

The vast majority of homes affected by fuel poverty are older, poorly insulated homes and this is where the council can have a much greater impact. Insulating these properties would lift people from fuel poverty and reduce the carbon footprint of the city now and in the future. Insulating older homes is one of the most cost effective ways of reducing energy use and hence carbon emissions.

Some of the worst houses are former council houses that were sold to their tenants at knock down prices for ideological reasons. Many of the owner/occupiers are elderly and struggle to pay their utility bills, therefore can not afford to invest in double glazing, loft insulation, wall insulation or efficient central heating systems. Their neighbours that were not persuaded to buy their council houses have had all this supplied by their housing association.

So where do the parties stand on this issue?

Read more »

Wind Energy Costs

Following the recent attack on wind farms by MPS, I wanted to look at the cost of wind energy in fairly broad terms.  The latest attack on wind farm development is by a list of over 100 hundred Members of Parliament from across the political spectrum (I counted 2 Labour, 2 Lib-dems, one DUP, with the remainder being conservative) who wrote an open letter to the Prime Minister calling for a ban on any subsidies and tightening planning controls to make it easier for people to block developments. This coming from a government that wants to reform planning to include "presumption in favour of sustainable development".  They appear to rate wind farms as unsustainable while new housing on greenbelt is perfectly sustainable; we have so much green space that we can build on it now without limiting future generations ability to build on it too!

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Bag it, Bin it or Don't

I took my 6 year old daughter Christmas shopping the other week. We went to Lush, the hand made cosmetics company, looking for a gift for her mother. She was in heaven: the bright colours, the smells, the glitter and the pretty shapes of the soaps and bath bombs. There was no difficulty in choosing a gift for mother (especially one she might share), the only problem was deciding to stop!

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