What’s the ‘roll over trap’?
The ‘roll over trap’ is how energy companies make profit from customers who’ve switched one year, but then forgotten to do it again. And it’s a tactic that generates some big energy companies up to £300m a year in earnings.
Here’s how it works: You shop around for a cheap deal on energy, switch to a new supplier and then you forget about it. You think you moved to the cheapest supplier last year, so you’ll still be better off – remember, you switched to the cheapest. In reality, when you forget to switch again or renegotiate, that supplier moves you to their “standard variable tariff” (SVT) which can be 53% more expensive.
You’re probably paying £300 more for power than your neighbour
Currently 66% of all UK households are paying the SVT, so it’s a major source of profit for suppliers. Ofgem puts into stark contrast: if you’re on a typical household and paying a SVT, on average, you’ll be paying about £300 a year more for your energy.
At these rates, suppliers make a full years’ profit on a single customer in just a few months.
Below is a handy graph by Octopus that shows the extraordinary differences between energy supplier’s teaser deals (the price you pay when you first switch) and their SVT rates (the price you roll onto in subsequent years).
Why do energy companies do it?
There’s a couple of reasons why suppliers do this.
A big reason is competition. There’s now over 100 companies licensed to supply energy in the UK. Most of them you’ll have never heard of, but effectively they try to win new customers by offering lower prices and then try to make them profitable in the following years. They call this “loss leading”, and bank heavily on you forgetting to switch again.
Another reason is customer churn or payment risk. If they move you to a SVT and make all their profit in a few months, it doesn’t matter if you then decide to switch again or don’t pay your bills: they’ve made their profit anyway.
What can you do?
Make sure you switch supplier every year. Your supplier is legally obliged to tell you when your fixed price deal is coming to an end. It’ll be on the invoices they’re sending you.
And don’t fall into the trap of thinking their new offer is a great one – they need to make some profit from you now!
So take back control, and shop around and switch. It costs nothing to compare electricity and gas prices.
Just think what you could do with the extra cash.