Millions of households have felt the pain of rising energy prices over the past two years, when they were switched to expensive variable tariffs at the height of the crisis.
Some suppliers have quietly started offering cheaper fixed deals again as the price of gas and electricity falls, but there is another type of tariff that is not as well known and could also help households save on their bills.
Octopus Energy first launched its tracking tariff in 2017, before canceling the deal when energy prices rose.
It then relaunched the tariff this summer, but only for existing Octopus customers with smart meters.
Volatile prices: Octopus Tracker follows the daily wholesale price of gas and electricity
The tariff tracks the wholesale price of gas and electricity daily and charges customers that amount.
Octopus claims that it is “the fairest and most transparent tariff in the energy market”, as it directly transmits price changes.
As wholesale gas prices fall, could this be a good way to make some savings or does market volatility make it too big a risk?
What is the difference between standard and tracking variable rates?
Standard variable tariffs also depend to some extent on the wholesale price of gas and electricity.
Suppliers can increase or decrease what customers pay for an SVT when wholesale costs rise or fall, as they often do, but it is ultimately at their discretion.
Another difference between an SVT and a tracker is that the price will rise and fall at certain intervals and the changes will not occur immediately.
Wholesale prices change all the time and it is not feasible for SVT rates to change every day, as customers will see on the Octopus tracker.
For the past two years, SVTs have remained at or around the maximum price that can be charged under Ofgem’s price cap rules.
Gareth Kloet, energy expert at GoCompare, says: ‘In the traditional sense, a standard variable tariff is a bit like a tracker. For the past few years, the price limit has been followed.
“It doesn’t have to be that way, but since the cost of energy is usually higher than the maximum price, the same path has been followed.”
‘What Octopus have done is they have moved away from the price ceiling and are offering you a suitable tracker; Consider it a tracker mortgage.
«Therefore, the wholesale cost of gas and electricity can go up and down every day. Octopus will look at the wholesale price, use that rate, multiply it by the quantity you use, add a little bit, and add the standing charge.
“Your tracking fee will change literally every day.”
Bright idea? Octopus’s tracking fee changes the price customers pay every day as the wholesale market moves, but is not protected by Ofgem’s price cap.
How much will you pay for a tracking fee?
Octopus Tracker is not protected by Ofgem’s price cap, which is currently 30p/kWh for electricity and 27p/kWh for gas.
Octopus has its own limit for the tracker, but it is significantly higher than Ofgem’s.
The maximum daily price of the tracker rate is 100p/kWH for electricity and 30p/kWh for gas.
However, the average cost of the tracker is 44.71p per day for electricity and 26.84p per day for gas, below Ofgem’s limit of 53p and 27p per day.
Octopus warns that “it’s not right for everyone, and certain customers may be better suited to a protected tariff with a price cap.”
If the worst happens and the price of gas and electricity rises again, you could be stuck
Gareth Kloet, energy expert at GoCompare
Kloet says: ‘Although at the moment the unit rate seems quite competitive, if the cost of wholesale gas or electricity were to increase considerably, you could end up paying more. It is not at all protected by Ofgem’s price cap.
‘Knowing what I know about the volatility of wholesale gas and electricity prices, I think it offers almost no protection. That 100p limit is huge and you could really end up with a big bill.
“The only protection this rate offers is that there is certainty about the charges currently in effect.”
As the wholesale price of gas and electricity has fallen in recent months, some households might think it is worth following the wholesale energy price on a daily basis.
“If you think it’s going to continue going down, you might get a good deal,” Kloet says. “But we are approaching winter and, as Octopus says, the cost of gas and electricity is usually more expensive in the colder months because we all consume more.”
In addition to the volatility of the energy market, clients should be very attentive to daily market movements.
The price of wholesale electricity and gas can vary from day to day. Source: Energy-Stats.uk
Kloet says: ‘I had to get a spreadsheet to do the calculations. It is difficult because you have to make a calculation of what the wholesale cost of gas or electricity is and that varies a lot.
‘Energy is a necessity, you can’t really control what you use on a daily basis unless you start doing radical things like turning off the heating or stopping cooking.
‘I think those maximum prices are so high, that if the worst happens and the price of gas and electricity rises again, you can be stuck.
If prices rise this winter, it’s worth noting that you can give Octopus a fortnight’s notice to exit the tracker and move to another rate.
However, if you want to return to the tracker at a later date, you will need to wait at least 9 months before doing so.
Kloet adds: “While you can leave with advance notice, how many of us regularly check the wholesale price you’ve been charged?”
Who should consider a tracking energy tariff?
Certainly, a tracking fee is not for everyone. If you’re already struggling to keep up with your energy payments on an SVT, then a tracking tariff is certainly not for you.
However, if you are willing to track the price daily and look for solutions when the price is high, it could be a good option.
Rebecca Dibb-Simkin, Chief Product Officer at Octopus Energy, says: “Our customers are really engaged participants in the energy system, and tariffs like these allow them to play an even more active role while saving some.”
“For people who can move their energy-intensive tasks to days when the price is lower, [the tracker tariff] can be enormously beneficial.”
Octopus did not disclose how many of its customers have its tracking fee.
Kloet believes that, in reality, there will be relatively few: “You have to dedicate yourself to energy to be able to follow the wholesale cost of gas and electricity, follow the markets daily and determine if we are in a better or worse situation.” worse treatment and I think that is not for the general public.
‘I think they are too complicated. With your mortgage, interest rates will change month to month, while this changes daily, which is extraordinary because it can be volatile.
However, this volatility could have its benefits for households that use more energy.
Nathalie Mathie, energy expert at Uswitch.com, says: ‘With tracking tariffs, it is often just the unit tariff that fluctuates, so households with higher usage could benefit if prices fall.
“In return, you could potentially benefit from greater long-term savings, but you may want to be prepared to switch accordingly if prices start to skyrocket.”
The problem with this is that wholesale prices could be elevated for some time.
Energy experts Cornwall Insight predict Ofgem’s price cap will rise by £64 for the average home when it is next reviewed.
While the Octopus Tracker is not protected by this, it does suggest that wholesale prices will rise again. Generally, wholesale prices tend to rise in the first three months of the year.
Mathie adds: ‘Fixed rates are the only type that will give you certainty about what you will pay over a set period of time, usually 12 months.
“During that time, the cost of SVTs will change four times, while the price of a tracker could change every day.”
This volatility could also suggest why other providers have been slow to offer their own tracking rates, although that could change in the coming months.
If you are considering Octopus Tracker, keep in mind that it is still in beta and there is no set date for its official release.
However, eligible customers (existing customers with smart meters) can register now.
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