Why we are increasing energy prices for some customers
Most energy companies are quick to raise prices, and slow to cut them. We’re proudly the opposite. Indeed, a typical customer who’s been with Octopus 5 years has saved £892 – but today our Flexible tariff price is changing.
Head to frequently asked questions if you only have time for a quick rundown.
Here's what you need to know.
- Wholesale energy prices have risen 212% in the last 12 months and we’ve held prices as low as possible as long as possible
- All the other big suppliers have announced price rises to within a few pennies of the maximum legally allowed
- Our prices will be lower: £51 less for a typical home, and we’re holding off until October 14th
- We’ve set up a £2.5m fund to help up to 25,000 customers in financial difficulty, and our new tool will help customers find financial support (more details and register interest below)
Good to know: this price change only affects customers on Flexible Octopus (not those on any of our fixed tariffs). We'll be contacting all customers impacted in the next few days, and we'll continue to honour our current Flexible prices until October 14th – so customers have plenty of time to consider, or to talk to us about their options.
Unprecedented global energy prices have continued pushing up wholesale costs of both gas and electricity (which make up a big chunk of your energy bill). We always do our utmost to absorb as much as possible.
This is why we are the last large energy supplier to raise prices, and we’re keeping them lower.
As you may know, the other large suppliers – British Gas, EDF, E.on, OVO, ScottishPower and Bulb – have all announced October price rises, taking their prices within pennies of the Energy Price Cap: the legal maximum they can charge their customers.
We’re committed to making renewable energy affordable for everyone, so we’d prefer to never raise prices. But when we do it is always by as little as possible, and we will reduce prices as soon as possible.
From October 14th, our prices will be £51 below the cap for a typical dual fuel home.
On average, that’s a monthly increase of £8.33, and we'll contacting all affected customers within the next few days.
Our commitment to good value remains unchanged.
A typical home that switched to our very first fixed tariff in 2016, and stayed on Flexible Octopus since then, would now be £892 better off than they would have with the cheapest fixed tariff, and the cheapest standard tariff, from the Big 6.
We usually add about 5% to the cost of the energy we supply, which covers the costs of running our business (including customer service, trading risk, rent, fees we pay to switching sites and referral credits). With the precipitous rise of wholesale costs, we’ve foregone even this slim margin. This has cost us around £5m per month but we’ve been happy to do it as long as possible to maintain our promises to customers to fight hard to keep prices low.
Additionally, we work hard to keep costs lower with technology: our platform, Kraken, helps us deliver better service at lower costs – which lets us keep our prices competitive, even in the face of rising wholesale costs.
And despite these competitive prices, you’re still receiving electricity 100% backed by renewable generation, Which? Recommended customer service, and are part of our efforts to accelerate the world’s transition to renewable energy.
Are you struggling to pay your bills?
We’ve earmarked over £20m in support for Octopus customers struggling to pay their energy bills, including our £2.5m fund to help 25,000 customers plus government schemes. In the coming weeks, we’ll be launching our financial support tool – it will let you know quickly and easily what support is available to you, based on your situation.
If you would like to use our financial support tool as soon as it launches, let us know here.
HELPFUL FAQS ABOUT OUR PRICE INCREASE
What is the price increase?
This price increase will affect any customer on our Flexible Octopus (variable) tariff, effective from 14th October.
If you are on one of our Flexible tariffs, your unit rates (the amount you pay for each kWh of gas or electricity you use), are not fixed, and can fluctuate based on factors like longterm changes in our costs to buy energy.
How do I know if I’m affected by this price increase?
You can check what tariff you are on in your online account, but we will also email every affected customer with a personal projection of what this increase means for your energy costs.
Does this mean you’re one of the more expensive suppliers now?
Absolutely not; quite the opposite. Our Flexible tariff has always been priced well below the government's Energy Price Cap, and while most other large suppliers have increased prices as high as they're legally allowed to, we're still £51 below the new cap level.
How do you compare to other suppliers?
Once again, we're the last large supplier to increase our prices. The other big suppliers (British Gas, EDF, E.on, OVO, Scottish Power, and Bulb) have all announced October price rises already, taking their prices up to within pennies of the Energy Price Cap: the legal maximum they can charge their customers.
Our increase is smaller, later, and still well below the maximum amount most other major suppliers are charging.
I’m already struggling due to Covid, why have you increased my prices further?
We know a lot of people are having a tough time right now, which is why we've held back this rise as much as possible. For a long time, we've sheltered customers from rises by cutting significantly into the small margin we usually put on our tariffs (~5%, to cover our business costs). But wholesale prices have reached near record highs – more than 212% more expensive than last year – and so we have had to adjust tariffs so we can buy the energy our customers need, and keep being there to support our customers when they need us.
If you or someone you know is struggling with bills, please do let us know: you can read about how we can help on our blog.
We’ve also earmarked over £20m in support for Octopus customers struggling to pay their energy bills, including our £2.5m fund to help 25,000 customers plus government schemes. In the coming weeks, we’ll be launching our financial support tool – it will let you know quickly and easily what support is available to you, based on your situation.
You can register to be the first to know when we’ve launched this tool by registering your interest here.
How do I move to a fixed price tariff?
You can fix your prices at any time in a few clicks. If you're on our Flexible tariff and you've not received one already, you'll get an email very soon with all the details of this price change clearly set out. There'll be a personalised link in the email where you can fix your prices at any time.
How much money do you make from your customers?
We typically only add about 5% to the cost of the energy we supply, which covers the costs of running our business (including customer service, trading risk, rent, fees we pay to switching sites and referral credits).
And despite this low margin, you’re still receiving 100% renewable electricity, Which? Recommended customer service, and are part of our efforts to accelerate the world’s transition to renewable energy.
Will I start having to pay more immediately?
We'll continue to honour your current unit prices until October 14th. We won’t adjust your monthly DD payments now, but we will keep an eye to make sure your payments stay in line with your energy charges and get in touch if your account starts falling too far behind. If you’d prefer to adjust your monthly payment now, you can do so at any time in your online account.
Why are prices rising?
We appreciate these price changes can be a bit confusing. With our Octopus Flexible tariff, we occasionally change prices to reflect the costs of the wholesale energy we supply you. These movements can be a little like charting the path of a roller-coaster, but we try to smooth out the highs, and pass on the lows as much as we can.
On a variable tariff, we buy your energy periodically, up to a year ahead. Our wholesale costs vary, up and down, across the year. So, from time to time, we’ll update your rate if the wholesale costs have changed significantly.
The first half of 2020 saw wholesale prices hit historic lows due to global lockdowns. As these have eased, demand for power and gas has risen once again, and prices have followed.
Despite an ever growing share of the UK’s power coming from renewables, we’re still far too dependent on gas to heat our homes and generate electricity – the majority of which is imported. Not only is this bad news for the environment, but also energy prices. The combination of much of Europe’s industries and travel sectors recovering from lockdowns plus late cold snaps drove gas prices higher in the first half of this year.
Ongoing disputes between Ukraine and Russia has meant less gas flowing through to Europe, and at the end of the summer, gas storage levels are at record lows.
Droughts in Brazil and China have led to lower than expected hydropower generation, meaning gas is flowing there instead of Europe. In a dark irony, the very real effects of climate change is driving international demand for fossil fuels, and we're literally feeling the cost.
This, combined with significant gas and nuclear outages in the UK, and too few UK wind turbines to generate power from low wind levels have led to more gas, and even coal, being used for power production – pushing already rising wholesale gas and electricity costs to record levels.
And while the electricity Octopus supply our customers is backed by renewable generation, the cost of all electricity rises and falls together.
Since then wholesale prices have continued to rise, and over the last 12 months they’ve increased by 212% overall.
With a flexible tariff like the one you are on, there will be slightly more pricing variability compared to our fixed tariff, with prices going up as well as down as needed.
I’ve only just switched to you, why have you already increased your prices?
If you've not been with us long, we can appreciate this comes a bit out of the blue. But even after this increase Flexible Octopus is still very competitively priced: cheaper than our fixed tariffs, and £51 cheaper than the price cap for a typical home.
If you prefer, you can also fix your prices at any time, which will lock them in for 12 months. If you would like to fix your prices now, follow the link in our email setting out the details of this price change.
You’re a green energy company, I thought green prices were getting cheaper?
While the electricity Octopus supply our customers is backed by renewable generation, the cost of all electricity rises and falls together.
As the price of energy from traditional energy sources rises, the price of renewable energy rises with it. However, we believe as more and more renewable energy sources come online, in the long run prices should come down for everyone overall.
I’m on one of your Fixed tariffs, am I affected?
No. On a fixed tariff you are protected against future wholesale price rises. Because we buy your energy up-front, your costs per unit don’t change during the fixed period.
I want to take my business elsewhere, will you penalise me for leaving?
Not at all – you're on a Flexible tariff with no contract or exit fees (worth saying that even if you were on a fixed price tariff, we don’t have exit fees, so anyone can leave at any time).
And we understand. No-one wants to pay more for their energy than they need to, and that’s a principle we use to set our prices at a fair level. However, changing wholesale prices are affecting all suppliers in the industry, not just ourselves.
All the other big suppliers have already announced larger rises from October. As a result, we think it's important to have all the correct and relevant information when looking at other suppliers.
As the wholesale cost determines energy prices across the whole industry, we'd recommend comparing the unit rates and standing charges of any deals you look at carefully.
Lots of energy companies also employ what we call "tease and squeeze" tactics, where they offer a really great fixed deal, only to put you on a much higher variable tariff when that comes to an end, so it's also worth checking out what their variable tariff looks like compared to ours – most of the big suppliers put their standard prices at the maximum level they’re allowed to by the Government.
We've done a lot of work on exposing this within the industry and we were also a big part of campaigning for the energy price cap to protect customers from these really high cost tariffs when their fixed deals run out. You can read more about this on our blog.
If you would like any further information on how you can fix your prices to protect against future rises, let me know as we will be more than happy to help.
Of course if you still wish to switch away, we completely understand, and wish you the best of luck in the future.
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