What the Middle East conflict means for your energy bills

Rob Lilley-Jones: Last week the price you pay for your gas and electricity went down. Now that is despite the ongoing crisis in the Middle East that has caused wholesale prices to skyrocket. So, what does the future hold for energy prices in the UK? Well, let's find out on this episode of Which? Money.

The situation in the Middle East continues to develop and the energy markets across the world continue to fluctuate. Now, later on we'll be chatting to Sarah Ingrams from here at Which? to talk about our energy bills and what we can do to try and secure the best possible deal, and why those energy bills may have gone down at the start of April despite the current conflict. But first, I'm delighted to say that I am joined by Tom Goswell from Cornwall Insight. Tom, hello.

Tom Goswell: Thank you very much for having me.

Rob Lilley-Jones: Tom, it's brilliant to have you on. I know that things are super busy for you and the team at Cornwall Insight right now. So, just remind me what is your job? What do you do on a day-to-day basis?

Tom Goswell: Yeah, so I'm our energy supply lead at Cornwall Insight. I look after our products that look into the energy supply market and you're right, it's a very busy time.

Rob Lilley-Jones: Super busy for you and your colleagues. I can't even imagine what the office is like at the moment.

Tom Goswell: Certainly busy and things change day to day, I'm sure we'll get into it.

Rob Lilley-Jones: Absolutely. I mean, I think it's worth mentioning that we are talking on Thursday the 9th of April, so this is the current situation as we're speaking today because as we know it's an ever-changing situation. So, where are we at right now with energy markets? We had the ceasefire announced earlier in the week, I know that had seen then the price of a barrel of oil had come down. I don't know where we're at right now, Tom, so do you mind just giving us an idea of what the picture currently looks like?

Tom Goswell: Yeah, absolutely. So, of course we're talking about the conflict in the Middle East which is really putting a lot of pressure on global commodity markets – a lot of gas and oil coming through the Strait of Hormuz and that's been closed to shipping for a while. So, yeah, that's had a real impact on gas prices across the globe and that's obviously hitting home in the UK as well.

Where we're at now, as you said there's been a ceasefire announced, that looks like it might be on slightly shaky footing – we're not political experts here so we won't get into exactly what might happen – but oil prices have come up a little bit again since that announcement. So, yeah, it's too early to say what exactly the impacts will be on consumers in the UK, but it's looking very volatile.

Rob Lilley-Jones: And roughly how much of an increase have we seen since the conflict began?

Tom Goswell: Sure, so before the conflict began oil prices were about $70 a barrel and we're looking at around $100 now, perhaps a little bit less. So it's quite a significant increase. It's worth noting that of course we've been here before – we had the Russian invasion of Ukraine back in 2022. And it's probably worth noting that actually we're not seeing gas prices in particular go to the same level that we saw at that time. So while there is significant disruption and significant price increases, we've seen worse before in recent years.

Rob Lilley-Jones: Obviously you mentioned gas prices there. Is it mainly gas that has been impacted by what we're seeing in the Middle East and the Strait of Hormuz? Because people listening to this will be worried about their gas prices, but their electricity prices as well.

Tom Goswell: Gas prices are really a key fuel that's been impacted by the conflict, but that does feed into electricity and power prices as well. So we use gas to generate power in the UK and a lot of the time the gas price therefore sets the power price. There is a bit of a disconnect now – so with more renewables in the system, power prices are increasingly driven by how much sun there is and how much wind there is. And actually, during parts of recent days there's been very low power prices during the middle of the day when the sun's been out with some sunny weather here. So power prices are going up too, but not to the same extent that we've seen gas prices rise.

Rob Lilley-Jones: And am I right in saying that it's about a fifth of the world's energy that is currently flowing through the Strait of Hormuz in usual times it should be added?

Tom Goswell: Absolutely, yeah. So about 20% of gas and oil coming through the Strait of Hormuz. So it's quite a significant disruption to the global supply chains there. It's worth noting that our own mix in the UK has changed in recent years. Again, in contrast to the situation in 2022, we're getting a lot more gas now from places like the US and much less from places like Qatar. Having said that, it's a global commodity market, so although a lot of that gas would have gone to Asia and other economies, it still has a big impact on prices.

Rob Lilley-Jones: Obviously we're talking in a week where a ceasefire was announced. You've already said it's already potentially looking like it's on shaky ground. But if we did come to an end of the conflict, if there was a permanent ceasefire, how quickly would prices go back to – you mentioned that sort of 70ish dollar a barrel, dollar for a barrel of oil that we had maybe back in early March, for example, maybe end of February? How quickly would it take to get back to normal, or is this the new normal? Hard to say, I guess.

Tom Goswell: It is hard to say and we've touched on already that the situation is very volatile and changing all the time. Now if it was to stop tomorrow and we, like you said, go back to a more normal situation, there would be a reduction in prices. It'll take some time to clear the backlog of ships that are waiting to come through the Strait of Hormuz and that would need to happen to start to decrease prices. It would also take more time to rebuild some of the infrastructure that's been damaged in the area. So a lot of Qatari facilities that produce gas, for instance, have been damaged and that could take years to rebuild. So there will be a long-term impact. Like I say, it's hard to say exactly the extent of that impact, but there will be an impact for years to come.

Rob Lilley-Jones: And later on in the podcast I'll be chatting to our own expert Sarah Ingrams about the energy price cap and what we can expect to potentially see in July. But that's something I want to talk to you about because at Cornwall Insight you are pretty much on a weekly basis, I think I'm right in saying, predicting where we might be at with the next energy price cap and what that could mean for people's energy bills. Before we talk about what data you have in front of you, how do you go about doing that? How do you go about predicting what prices we might be looking at in the months to come?

Tom Goswell: It's worth probably first touching on how the price cap is set and where it comes from. So it's worth noting first of all that while we've been talking about prices increasing, that hasn't yet fed through to the price cap. So prices are locked in for those on the price cap from April to the end of June. So the next price cap period that we're looking at is starting on 1st of July.

What we do is basically follow the Ofgem methodology for setting the price cap – so Ofgem are the regulator for gas and electricity markets in Great Britain. So what we do is look at wholesale prices every day. We build up a picture over what's called the observation window. So the observation window for the July price cap runs from the 18th of February until the 18th of May. So we're more than halfway through that period now and we've got a decent picture of what wholesale prices have looked like over that time period. So we build up that picture, like I say, we produce forecasts on a weekly basis based on our latest observations. And then we add to that the non-wholesale elements as well. So again, it's worth noting that while around 40% of the bill is made up of these wholesale costs and there's been a lot of attention on those given the situation in the Middle East, that leaves another 60% or so which is non-wholesale costs. So things like network costs, which pay for upgrading the pipes and wires that bring electricity and gas into our homes, also costs for things like nuclear projects to fund new power stations such as Sizewell C in Suffolk. So we build up a picture of those non-policy costs as well, add them together and produce our forecast.

Rob Lilley-Jones: So then, Tom, with all that in mind, what are we looking at then for that next price cap when it comes in in July? I know that'll be announced in the coming weeks as you say by the regulator, by Ofgem. So, yeah, I'm sure it's not pretty reading compared to where we have been at.

Tom Goswell: Absolutely. So, like you say, it's pretty likely that prices are going to go up. Again, it's hard to say given the volatility of the situation, but we're currently looking at prices going up by a bit more than £200 per year on average. And it's worth noting that is for the average user – so those who use less energy will see less of an absolute increase, maybe if you use more energy, your bills will be higher still. But yeah, the current forecast is looking at around a £200 increase to around £1,850 for the average user. Like I said, that's changing day-by-day. It could continue to increase, it might be that that comes down a little bit, but it's very likely that it'll be higher than the level that it is at.

Rob Lilley-Jones: And obviously, Tom, given that rise, which is a big rise and it'll be impacting an awful lot of people, what support is currently available out there for anyone who might be struggling, or when these rises do come in they will find themselves struggling? What support is out there and what are the government maybe looking at doing, or what could they do?

Tom Goswell: In terms of support for people, it's always worth if you're struggling with your bill, firstly talking to your energy supplier, and there's other independent advisers like Citizens Advice who can provide support and signposting to the right places. In terms of government support, we've seen that before. Like I said, we had a similar situation with perhaps higher prices back in 2022. At that time, the government provided quite broad-reaching and universal support to consumers. We wouldn't expect to see something similar necessarily – the government has already said that it's learned the lessons of that time period and any support has to be better targeted. So it might be that there's some means-tested support in the future. However, that's probably unlikely until we get into the autumn and winter. So if the situation persists and we still have high prices for say the October price cap, you might see the government provide some level of support, but it's unlikely to come in in the summer. And that's also worth noting, right, is that we're talking about the July price cap period and average costs over a year, but people use less energy in the summer typically, so the impacts won't be as great in the coming months.

Rob Lilley-Jones: Tom, it's an ever-changing situation almost on a daily basis, so we really appreciate you coming on, given how busy you are. So, thanks for joining us on the podcast, really appreciate it.

Tom Goswell: Thanks very much for having me. Thank you.

Rob Lilley-Jones: Well, I'm now joined by Sarah Ingrams, Which? principal researcher and writer. Welcome back.

Sarah Ingrams: Thank you. Good to be here.

Rob Lilley-Jones: Now Sarah, you are looking at this week in, week out – energy prices, what's going on – it's really, really difficult and is there a huge amount that people can do right now? Hopefully we're going to give them some helpful advice in this episode that they can go home with and their bills, while they might not be pretty, they're probably lower than they could be. Is that safe to say?

Sarah Ingrams: The price cap is certainly keeping bills lower than they would otherwise be.

Rob Lilley-Jones: So the price cap then. Let's get into the details. I know people will have heard us talk about the energy price cap on this podcast a lot. That is the reason why bills did go down last week, isn't it, regardless of the current situation in the Middle East?

Sarah Ingrams: For the majority of people, yes. So the energy price cap limits the price of a single unit of electricity for customers who are paying for variable electricity tariffs and gas tariffs. So that's those out-of-contract tariffs that people are on. And it changes every three months. And so on the 1st of April, it fell by 7%. So that means that a typical household will now pay just under £10 less per month than they were paying between January and March this year. And as I'm sure you said before, it is not a limit on your total bill. So if your home uses more or less energy than average or than a typical household, your savings will be a bit different to that nearly £10 I've mentioned.

Rob Lilley-Jones: So you can't go crazy and just use as much energy as you possibly want to because, as you said there, it's a limit on the unit but not on the total bill.

Sarah Ingrams: Absolutely. Always worth remembering.

Rob Lilley-Jones: Now, it's right isn't it that the price cap itself is set sort of a few weeks in advance of it actually coming into force? So the price cap that has just come in at the start of April, that was decided about six or so weeks ago, maybe maybe further ago than that when the situation in the Middle East was very different to what it is now, safe to say.

Sarah Ingrams: Absolutely. So we knew the price at the level that price cap was going to be at the end of February. But where the price cap is set, Ofgem – the energy regulator which sets the cap – looks at a whole range of factors including the wholesale prices. And it looks at wholesale prices over three months in advance of announcing the cap to us. So if we're looking forward to the next price cap, they're already looking at the wholesale prices now to determine what that's going to be.

Rob Lilley-Jones: Now, how many people is this going to affect? I said there unless you're on a fixed tariff, it's going to impact you. It's going to be a lot of people, isn't it, that are paying effectively up to the top of that price cap ticker?

Sarah Ingrams: Yes, it's a lot of people. It's around 33 million household customer accounts that are paying those price cap rates. So that figure is falling, but it's still the majority compared to the number of households on fixed deals, and that's around 21 million accounts on those fixed tariffs.

Rob Lilley-Jones: Now, confusingly for those on fixed tariffs, I mean, the name would suggest that if you're on a fixed tariff, your bill won't change. But actually, for some of those on fixed tariffs, the bills did go down last week. Why did they go down last week?

Sarah Ingrams: You're right, so the fixed tariff customers will also see their bills fall from last week, 1st of April, and that's because the government has removed most of the costs of two major energy schemes which were added to bills. That's the Energy Company Obligation and the Renewables Obligation. And they were across all customers' bills and they've now been mainly removed. And almost all the energy suppliers funded both of those two schemes. So now they don't have to pay that anymore, they must pass the savings on to their customers. So the government has announced savings that you might have heard about as about £150 for fixed tariff customers. But exactly how much you're going to see the savings are depends on how much energy your household is using and also which supplier you're with. And that's because there's a few small suppliers that only had to fund one of those two schemes owing to their size, and so they have smaller savings therefore to pass on to their customers. So that'll affect you if you're with 100 Green, Fuse Energy, Good Energy, Home Energy and Tulo Energy – it'll be slightly different savings. By this point your energy company should have told you how much you're likely to save and what your new rates are. If you haven't heard yet, your energy supplier should tell you next time it contacts you. You don't need to do anything to get those new lower rates, they'll be applied automatically and they will apply until the end of your contract. So although unusually we're in a situation where fixed tariff customers are seeing a price change in that contract, there won't be any more – it will continue until your contract finishes.

Rob Lilley-Jones: It's a bit of a weird picture, isn't it, because we've been talking there about what's happening right now – people's bills going down because the price cap is now lower and as you said those obligations have been removed so bills have come down even for people on fixed term deals. But then we also talked about what's going to happen in July where bills are going to go up again. It's very hard to work out sort of where we're at now, isn't it, and it's confusing for homeowners when they look at their bill because it's difficult to plan how much you're going to be spending, especially if those on fixed deals are coming to the end of that deal. What is your advice in this situation? If you are coming to the end of your fixed rate deal and you're looking to maybe look at what other deals are out there, should you be going onto another fixed deal and – I suppose it's the same advice if you're not currently on a fixed deal – should you be going onto one now, given what we know is going to happen with energy bills going forward from July?

Sarah Ingrams: So if you're on a fixed tariff that's coming to an end, if you do nothing, you will end up on the variable tariff, on that out-of-contract tariff that's subject to the price cap. So if you were to end it about now, then you'd be on the lower price cap rate. But as we've discussed, we know – or we're very sure – that that is going to go up. So we'd usually recommend fixing your energy tariff and that is still our advice – it's the long-term best option for most households. But that said, due to the high, volatile global energy prices, the market for those fixed deals is limited right now. We've seen energy providers taking tariffs away, launching new tariffs regularly with different prices. Some firms are charging higher exit fees than they were sort of six weeks ago. And unlike six weeks ago, unfortunately you're not going to find a fixed tariff that's cheaper than the price cap right now. And that's partly because the price cap came down, but also because the wholesale price of gas that you mentioned before has rocketed. So you might find one that's sort of more similar to the rates you were paying on the price cap tariff January to March. And something like that is likely to be your best bet, really. If you did get a tariff that was around that rate, then it would mean that you would pay more than the price cap that's for April to June for the next three months. But then you'd expect to save money compared with the higher rates we're expecting to see from July to October and potentially further forward. We're not going to know the level of that July price cap until later in May, but the higher prices that we've been seeing over the past six weeks are going to be taken into account in that new cap. And that's because, as I mentioned before, the energy regulator Ofgem which sets the cap looks at three months' worth of wholesale energy prices to set the new cap, and that window for the July cap has already started – it started in March.

Rob Lilley-Jones: Needless to say, when we do find out what that new price cap is going to be, then we will of course let you know. We'll talk about it here on the podcast, I'm sure, but you can find out all the details over on which.co.uk as well because Sarah, I'm sure you'll be writing about it.

Sarah Ingrams: Absolutely, yeah.

Rob Lilley-Jones: Let's talk about those exit fees, because I think it's worth touching on those because for a lot of people actually when you're looking at your energy bill, maybe when you're looking for a new energy provider which again we'll come on to, might be a bit of small print that you're not actually looking at. So, so what is an exit fee, and how much could it cost people?

Sarah Ingrams: So an exit fee is the amount that you would have to pay on some fixed tariffs if you want to leave before the end of your contract. And there is a slight caveat to that which I'll come on to. But typically, if you're looking to to fix a new tariff, they should tell you up front what that exit fee is going to be. And it's sometimes quoted as per fuel, so £25 per gas or per electricity. So if you've got dual fuel, double that – that's a £50 exit fee. But at the moment we're typically seeing around a £100 exit fee on the 12-month deals and some are up to £150. If you've got a longer-term deal – two years – then the exit fee is going to reflect that, could be higher. I mentioned a caveat before – so that's if you're in the last 49 days of your contract, you can switch without having to pay that exit fee. Some suppliers will also say that if you're going to switch between their tariffs but stay with them, then you don't have to pay the exit fee afterwards.

Rob Lilley-Jones: Let's talk about where we could switch then. If you don't have to pay an exit fee, maybe now is the time to switch for you. It's not necessarily about choosing the cheapest provider, is it? We'll go on to our Which? recommended providers shortly, but it's not necessarily about switching to the cheapest, because the cheapest isn't always the best.

Sarah Ingrams: You're absolutely right. But we know right now that getting an affordable rate is crucial. So if you're looking to switch and getting quotes, I'd recommend that you take a moment to dig a little deeper than the headline price you're seeing to make sure that you're really getting the best value option for you. I'd recommend that you check any prices are based on your actual usage over the last year. And this is more accurate than a price that's based on estimated usage or an average user across the last year. Comparison sites can default to using a model of a low user, a medium user, and a high user, and whilst they can be quite useful, your household setup and use is unlikely to be exactly any one of those. So getting a quote and switching based on those prices is unlikely to be exactly what you're going to need to pay going forward.

Rob Lilley-Jones: And that's why, Sarah, it's important to make yourself familiar with actually what your usage is and check your bill and check your statement and check your online account in many cases to see how much are you actually using.

Sarah Ingrams: Yes, so you can get those the usage figures for the last year through your online account, through your app. If you've got a smart meter or a little display indoors for that, it might be able to tell you on there as well so you can get hold of those figures to get the best quote for you. If you're using more of an average figure provided by a switching site, then when you get on supplier with a new supplier, it will see how much you use and it might need to adjust your payments to make it realistic, so avoid getting caught out by that one. As we mentioned before, look out for exit fees if you need to pay those if you want to switch to another tariff – for example, if the situation with the wholesale prices gets better and you see something cheaper. If you're locked in with really high exit fees, you might feel more reluctant to move to a better deal. Also check whether the tariff has any other criteria that might affect you. So for example with some tariffs you'll need to manage your account online, you can only have bills that are digital, you can't have paper ones, or you'll need to agree to have a smart meter fitted if you don't have one already – so check if there's any of those.

Rob Lilley-Jones: And also how important is – and this sounds like an obvious answer – how important is the quality of the service you're going to get from your supplier as well?

Sarah Ingrams: Really important. So as well as the price – crucial right now – we are inundated with complaints from people who get subpar service from their supplier. So that's one of the reasons that we run an annual comparison of energy suppliers to really try and pull out which ones are doing the best for their customers and which ones aren't matching up so well. And last time we did it and published just a couple of months ago, we found big differences between suppliers on everything from customer service to how easy they are to contact to how clear, how accurate their statements are and how good value for money, or otherwise, customers felt that they were. We got nearly 12,000 energy customers in Great Britain to tell us about that and went behind the scenes to look at some of their practices to see if they were in the best interest of customers. So biggest is not necessarily best.

Rob Lilley-Jones: A great tease though, a great tease of our annual survey because as you said we published it very recently, just a couple of months ago. So let's get into those results then. Who are the best of the best?

Sarah Ingrams: Absolutely. So this year we were proud to announce four Which? recommended providers and they include Octopus Energy, a big provider in the market.

Rob Lilley-Jones: And Octopus Energy who have been a Which? recommended provider for a long time as well.

Sarah Ingrams: Nine years running now. Alongside 100 Green, Sainsbury's Energy and then E Gas and Electricity. And E is a prepayment specialist provider, so you'll need to have a prepay setup for your energy if you want to go with them. And so we've got four to choose from this year.

Rob Lilley-Jones: And what's interesting there from some of the names you mentioned – obviously we mentioned Octopus Energy who big name, people will have seen their adverts, they'll have heard the ads on radio and TV and seen them on TV, I'm sure. But some of those other names – smaller names or at least names that aren't as familiar to people watching or listening to this. So it does show that actually it's not all about the big names necessarily and as the rest of the survey showed, I think.

Sarah Ingrams: Absolutely. So if we look towards the bottom of the table overall, some of the big household names – Scottish Power, EDF, British Gas – were near the bottom of our rankings this year when we looked at customer feedback and then going behind the scenes. Whereas while you mentioned those three smaller ones, it's the value of our assessment that we can dig in and find really what the customers of those small brands do think of them.

Rob Lilley-Jones: Sarah, if you were going to leave us with any final thoughts, what would they be? There's so much to get our heads round with what's going on and it feels like it's a constantly changing situation. So what would you leave our listeners with today when it comes to their energy bills and how much they could be paying?

Sarah Ingrams: I'd say with all of the news coming at us about the volatility of energy prices and them going up and going down, don't let that put you off switching. If you're in a position where your fixed deal is coming to an end, or especially if your fixed deal is coming to an end at the point the price cap is going to go up – so your summer fixes ending – do go and look for what your other options could be and see if you can find something ahead of time that is going to be the best value option for you long-term.

Rob Lilley-Jones: Sarah, as ever, thank you so much for joining us.

Sarah Ingrams: Thank you for having me.