The plan has been launched in response to criticism that the energy giants were slow to pass on price falls. With standard plans, firms have complete discretion over when they pass on changes. But with the new tariff, British Gas will guarantee that they will be reflected in your quarterly bill.
In the same way that tracker mortgages are linked to Bank of England rates, the British Gas Market Tracker will follow changes in the Heren index of wholesale gas and electricity prices.
Critics have warned that the company could be launching the product at just the wrong time: experts said prices could jump 20% over the winter months.
The Market Tracker, available from this weekend, is also more expensive than its cheapest online tariff. Customers will initially go on to the British Gas standard tariff which costs on average £837 a year for dual-fuel direct debit customers. This is £82 more than British Gas’s cheapest tariff, Click Online 3.
Wholesale gas prices would have to fall by as much as 18.6% and electricity by 23.2% to bring the tracker into line with Click Energy 3, according to the comparison firm, Energyhelpline.com.
However, if they dropped by this much, standard tariffs would be likely to fall too. Paul Green, managing director of Energyhelpline, said: “If there was such a steep fall in the wholesale market, we would expect suppliers to offer cuts on other tariffs anyway. There would certainly be huge pressure for them to do so.”
If you sign up this week, you will be put on to the British Gas standard tariff in September. British Gas will then calculate the average wholesale price between September and December and if this has changed by more than £5, either up or down, a new price will be set for December to March. No changes will be made if the fluctuation is below £5. Prices will be recalculated again in March and June.
New customers will therefore be on the expensive standard tariff for three months, paying about £19 more than a Click Energy 3 customer.
You can join in December to avoid the standard rate, although there is no guarantee that the tracker rates will be cheaper because wholesale prices could increase this winter.
Last year they fell dramatically, but this followed unusually high prices because of a lack of supply from Europe.
Patrick Heren, managing director of the Heren index, which has tracked the wholesale market for 13 years, said the normal trend is for energy prices to increase over the winter, so someone joining the tracker in September would more likely see their prices rise than fall.
“This was not the case last winter because Norwegian suppliers flooded the UK market after a period when there was a lack of supply, but I would expect wholesale prices to go up this time – although we have to see what the Norwegian suppliers do first to get a better idea of how things will change,” said Heren.
Energyhelpline estimates that, historically, the average wholesale increase over the winter months has been about 20%. Paul Schofield of Moneysupermarket said: “This product will only appeal to people who are willing to take the risk. There is no guarantee that you will benefit from it, especially as the starting rate is so high.”
Npower launched a similar product in January, but it has attracted only 3,500 customers despite saying it would offer it to the first 10,000 applicants. The product is now closed to new customers.
Even though prices were set at the standard Npower tariff in January, the first adjustment was made in April. Prices fell by 4.7% for gas and 10% for electricity during the April to June quarter. However, for June to August, prices have increased. Tracker customers are paying, on average, 2% more than in January for gas, and 1.3% more for electricity - about £642 and £417 respectively.
Those on Npower’s cheapest deal, Sign Online, are paying £496 for gas and £297 for electricity. This itself has fallen from £558 for gas and £347 for electricity in January, highlighting the fact that falls in wholesale rates have been passed on anyway.
Karen Derby of Simplyswitch said: “Tracker products may follow wholesale prices but, if consumers want to find the best deal, they are far better off using an Energywatch-approved price comparison service.”
Phil Bentley, managing director of British Gas, said: “This new product is for those people who understand and accept the risk that their bills could move up or down far more frequently – but they are guaranteed that their bills are reviewed every quarter.”
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