Small energy suppliers increase prices - will the big six follow?

Ovo Energy has announced that it is increasing its prices.

The move will see the cost of its cheapest plan - New Energy Fixed - go up from £1,172 a year to £1,240, a £68 or 5.8% increase, with immediate effect. However, existing customers will be hit too when its variable prices are increased by 6.5% on the 20th May, says uSwitch.com, the independent price comparison and switching service.
 
It is the second supplier outside of the big six to hike prices. Co-op Energy increased prices for new customers on the 12th February by 8.7% or £101 for gas and electricity. Earlier this week (9th April) it announced that it would be increasing prices for existing customers too, by 8.5% for gas and 9% for electricity on the 9th May. Co-op Energy blamed escalating costs for the move, which will take its average dual fuel bill up to £1,258 a year allowing it to fall to the bottom of the energy best buy tables behind Britain's big six suppliers.
 
Typically, smaller suppliers are more vulnerable to wholesale market fluctuations. They are quick to pass on the benefits of wholesale reductions to their customers, but are also forced to pass on higher wholesale costs more quickly than their bigger rivals. Wholesale prices soared recently in response to gas shortages caused by the extended winter and the coldest March for 50 years. Experts have warned that household energy bills could increase later this year as a result.
 
Two of Britain's big six energy suppliers have indicated that households can expect energy bills to soar further this year. In March, E.ON refused to rule out a price hike in 2013 pointing to ‘significant uncertainty' towards the end of the year. Similarly, British Gas stated last October that a further £60 could be added onto household bills this year.
 
At the same time, suppliers are increasingly bringing out attractive longer-term fixed price plans, which can also be seen as a sign of the direction in which they believe prices are going to go. EDF Energy's new Blue + Price Promise tariff guarantees prices until the end of February 2015, while npower recently launched the longest fixed price energy deal on the market which protects against price hikes until the end of 2015 (31st December).
 
Tom Lyon, energy expert at uSwitch.com, says: "The fact that smaller suppliers are increasing their prices is not just a blow to their own customers, but a warning to consumers generally that price hikes are back on the agenda. Higher wholesale prices translate into higher household bills - unfortunately for consumers it's rapidly turning into a question of when rather than if.
 
"There is some small consolation in that suppliers are increasingly bringing out attractive longer-term fixed price plans. Yes, this indicates the direction in which they believe prices are going to go, but it also gives consumers an opportunity to protect themselves against price hikes for anything up to three winters. With many households struggling to afford their bills, this pricing certainty could be a blessing.
 
"With the average household energy bill already an eye-watering £1,353 a year, it's also important that consumers now take action to reduce the cost of their bills. There are two simple steps to doing this - use less energy by making our homes more energy efficient, perhaps by taking advantage of the Green Deal, and paying less for the energy we do use by switching to the most competitive tariff for our needs."