Energy suppliers used to reserve the cheapest and best energy deals for its first-time customers. These deals would inadvertently be funded by existing customers, as when their fixed deals would expire, they would be transferred onto their supplier’s Standard Variable Tariff (SVT) – usually the most expensive option for gas and electricity.
This practice became known as the ‘loyalty penalty’ or ‘loyalty tax’ as customers were being punished by remaining loyal to their existing supplier.
But the energy crisis has brought some changes to the market, including a temporary lifting of this penalty.
Who is considered a new energy customer?
If you’ve never signed-up for a gas or electricity deal, or are thinking of switching to a new supplier, you are considered a new energy customer.
What is the loyalty penalty?
The loyalty penalty is the difference between what existing (loyal) and new customers pay for the same service. Once a customer’s cheap, introductory deal (fixed deal) has expired, they will be rolled on to their supplier’s Standard Variable Tariff (SVT), which is usually a lot more expensive. Prices are also no longer “locked in” as they were on a fixed tariff, and the cost for each unit of gas and electricity will fluctuate depending on the wholesale energy market.
Until recently, these customers were unable to move to a new fixed-rate energy tariff with their existing supplier. However, in response to continued market volatility borne from the energy crisis, Ofgem has temporarily suspended the loyalty penalty with its introduction of the ‘Ban on Acquisition-Only Tariffs’ (BAT).
What is the Ban on Acquisition-Only Tariffs (BAT)?
In April 2022, in response to increasingly high and volatile energy prices, Ofgem introduced the Ban on Acquisition-Only Tariffs (BAT). The ban means suppliers cannot poach new customers by offering them cheaper, fixed-rate tariffs that are not also made available to their existing customer base.
Ofgem claims that the BAT protects energy customers from volatile energy markets by reducing the incentive for suppliers to offer potentially unsustainable fixed-deals. If the BAT were not in place and suppliers began to offer deals that were considered aggressively-low during market turmoil, it could increase the risks of financial stress and supplier failure, resulting in disruption and costs for customers.
The BAT was intended to be a temporary solution to help protect customers during the energy crisis, initially due to end in March 2023. However, on 3 February 2023, Ofgem announced it would extend the BAT for at least another year, with the next review due in March 2024.
Should I switch to a new supplier now?
Currently, most households in the UK will be on a standard variable tariff (SVT) with their supplier, meaning the prices they pay for each unit of gas and electricity is set by the Government’s Energy Price Guarantee (EPG).
From 1 July 2023, the EPG will cease and be replaced by Ofgem’s Energy Price Cap, with prices set at £2,074 a year for a typical household paying by direct debit – £426, or 17% lower than the EPG. This estimate includes VAT and is calculated by Ofgem's Typical Domestic Consumption Values (TDCV) which is currently measured as 2,900kWh of electricity and 12,000kWh of gas per year.
It is important to remember that the incoming price cap will change after 30 September 2023. Ofgem will update the new price cap after its quarterly review – set to take place in late August, with the new cap taking effect from 1 October 2023.
On the other hand, a fixed tariff will lock-in the unit cost of your gas and electricity (measured in kWh), as well as your standing charge (the price you pay to stay connected to the grid) for a period of time, usually 12, and in some cases, 24-months.
A fixed-rate deal can offer price certainty, as you will know exactly what your unit rate for gas and electricity will be in advance. It also offers protection in the event wholesale energy prices start to increase again. However, it's important to consider your options carefully. If you opt to sign-up to a fixed deal now, and wholesale energy prices continue to fall, you will not be able to take advantage of potentially cheaper deals that may be introduced.
When will open-market fixed deals become available again?
At the moment, a select few suppliers (British Gas, Octopus Energy, OVO Energy, SO Energy, and E.ON Next) are offering fixed deals at or around the July price cap for a select number of its existing customer base.
As wholesale prices continue to come down, it is expected that energy suppliers will begin expanding these deals to new customers looking to switch.
But without constantly scanning the market, how can you know when these deals will be made available? This is where we can help. Switchcraft not only offers you an easier and better way to manage your energy, but our service is entirely free.
How to use Switchcraft to get the best gas and electricity deals
- Start with our initial sign-up by entering your email address and postcode, selecting your address from the dropdown box. We’ll use these details to locate your current supplier and energy usage and match it to the best energy deals currently available that suit your personal circumstances.
- We’ll email you a quote of the best energy deals we find. If you’re already on a good deal, or should wait to avoid exit fees, we’ll tell you that, too.
- Once you’ve chosen your deal, simply confirm your sign-up details and we’ll begin the switching process automatically. Remember: once your switch has started, you will have a 14-day cooling off period in which you can change your mind for any reason with no fees or penalties.
Once you're switched
- We record the type and length of deal you've switched to and add this to your preferences to ensure we always pick energy deals that work for you.
- We’ll continue to scan the market in the background. Once you’re eligible to switch again, and once we find you a better gas and electricity deal, we’ll send you an email.
- You can approve the switch or cancel it. If you do nothing, you will be switched automatically.
How does payment work?
When confirming the details of your new fixed deal, we’ll ask for your bank details, which we’ll send to your new supplier to set up a Direct Debit.
We encrypt your details to keep them safe and our switching process secure.
Switchcraft does not take any money and our service is 100% free.
Switchcraft is a free service. So how does it make money?
Our services will always be free to our customers. We receive a small commission fee from the energy provider once a switch has completed.
The commission we receive does not affect the quote on the deals we source, with the price the same as were you to go to the supplier directly.
Although most competing energy comparison sites will help you switch, they’ll do this only once. But we use our technology to automatically switch you once a better deal becomes available – and only when you can avoid exit fees. We’ll do this for the entire time you're with us, meaning you can rest easy knowing you’re always paying the best price for your energy.
Thinking about switching?
If you’re thinking of switching energy suppliers, it’s first worth checking when the best time to switch is. This will help you maximise your savings.
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