Why we are increasing energy prices for some customers

O-London-024 (2).jpg

We appreciate that any rise to heating and lighting your home is not ideal. We work really hard to keep our business efficient, and our costs small, and in the last year we’re proud that we were the first big supplier to drop prices when we could, and the last to raise them.

We will email all affected customers with more information over the next 2 days, but there are also some FAQs below which might help you.

In February this year, our CEO Greg Jackson appeared on BBC Breakfast talking about the Ofgem (energy regulator that governs us) announcement that the energy price cap that limits what energy suppliers can charge customers was being increased - so energy suppliers could charge energy customers an extra £96 a year.

This £96 a year increase was partly to pre-emptively cover customer debts due to the Covid-19 pandemic. I wrote more about that here.

We believed that this increase was wrong. We price well below the price cap anyway (the price cap is meant to be a limit not a target), and we didn’t believe that it should be increased further to protect the pockets of big energy suppliers in case hard-pushed customers couldn’t pay in future.

Since our early days, we’ve made it clear we price our energy fairly for all customers – we take the cost of the energy we supply to you and add a small margin (generally around 5%) to cover the costs of running our business. That is just as true today as it was when we first set out.

But to be clear: we continually review prices, and increase or decrease them as our costs (such as wholesale energy trading), change. We will adjust prices if and when necessary but we will continue to hold off on raising prices for as long as we can, and continue to pass on cuts as swiftly as possible.

We will not raise prices to the cap, and we will not raise them to ‘pre-emptively’ cover debt, but we are today announcing that we are increasing our energy prices a small amount due to the increases in wholesale prices over the last year.

However, our prices will remain well under the price cap, and less than all of the other big energy suppliers, and will remain as they are for an extra month

To put it in simple terms: our Flexible tariff is increasing by an average of £72 per year. Most other large suppliers have increased their prices to the maximum price cap, an extra £96 per year – we were cheaper than the market before, and now we're even more so.

The three reasons we’re able to keep this rise lower and later than other suppliers:

  • Our technology lets us run our company at a lower cost, and we pass the savings on to you
  • We’re taking on the UK’s largest operator of solar farms and as well adding more renewable generation, we expect to see cost benefits. We’re passing these on early
  • We’ve received substantial investments in the last 12 months that mean we are able to absorb some of the rise, and pass less on to you than any of our large rivals.

We appreciate that any rise to heating and lighting your home is not ideal. We work really hard to keep our business efficient, and our costs small, and in the last year we’re proud that we were the first big supplier to drop prices when we could, and the last to raise them.

We will email all affected customers with more information over the next 2 days, but there are also some FAQs below which might help you.

HELPFUL FAQS ABOUT OUR PRICE INCREASE

What is the price increase?

We are increasing our prices for customers on Octopus Flexible (our variable tariff) by an average of 7.1% (about £6 a month) from the 12th May.

How do I know if I’m affected by this price increase?

If you are on one of our Flexible Octopus tariffs, that means that your unit rates (the amount you pay for each kWh of gas or electricity you use), are not fixed - and we may change them if we have to.

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 extra they will have to pay.

Does this mean you’re one of the more expensive suppliers now?

Absolutely not. Quite the opposite. Because we already priced our variable tariff well below the price cap, and we are increasing less than all the other big suppliers, we are actually even cheaper relative to those other companies - a typical home will still save £106 annually compared to price cap prices.

How do you compare to other suppliers?

Last year, we were the first large supplier to cut prices, and this year we’re the last to increase them. The other big suppliers (British Gas, EDF, npower, E.on, OVO, ScottishPower and Bulb) have announced April price rises for gas and electricity of 9.2% on average. Our rise is smaller: 7.1% for dual fuel and we’re holding off until May.

A typical home will still save £106 annually compared to price cap prices.

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. Ofgem have increased their price cap by 9.2%, and many suppliers have increased their prices to the highest level legally possible. We're cutting our margins, and raising less, but we do need to increase prices to 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: we can help - you can read about how we’re dealing with the pandemic on our blog.

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 prices until May 12th. We also won’t adjust your payments now, but we will 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 in your online account.

Why are prices rising?

I appreciate these price changes can be a bit confusing, so allow me to explain in a bit more detail. 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, the whole country is still very dependent on gas generation, and less gas extraction globally in 2021 has fed directly to higher electricity prices. The price of carbon credits have risen extremely quickly, and are currently trading 80% higher than November.

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 (only around £6 a month for most people who take both gas and electricity from us), Flexible Octopus is still very competitively priced: cheaper than our fixed tariffs, and over £100 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?

Although we supply you 100% renewable electricity, the majority of the price we pay isn't determined by how the energy is generated, but the overall wholesale price for all electricity. As energy from traditional energy sources rise, 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 are on a variable tariff, but even if you were on a fixed price tariff, we don’t charge 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 April. 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. However, our standard prices will save a typical home over £100 per year compared to the maximum rate.

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.

Published on 12th April 2021 by:

image of Rebecca Dibb-Simkin

Rebecca Dibb-Simkin

Director of Product and Marketing

Hey I'm Constantine, welcome to Octopus Energy!

×