Electricity prices have been too confusing for too long.
New research from the ESRI has proven something we’ve had a hunch about for a long time - the way electricity prices are structured and marketed isn’t as clear as it could be.
Most suppliers offer big discounts to new customers, and those discounts can range from 5% all the way up to 33%. But here’s the catch: those discounts are often taken off different unit rates, depending on the supplier.
So, a supplier offering a 30% discount isn’t necessarily going to be cheaper than a supplier offering a 20% discount.
Pretty confusing, I’m sure you’ll agree.
Thankfully, the CRU agrees too and has introduced a new rule, forcing suppliers to provide an estimated annual bill in their ads.
To test to the potential effectiveness of the new Estimated Annual Bill rule, the ESRI has run a number of experiments to give us an insight into the factors that influence our decision-making when choosing an electricity supplier.
In one experiment, 36 consumers were presented with pairs of electricity deals and asked to pick their favourite. The prices of some deals were presented as discounts from standard rates and others were presented as actual unit rates (i.e. no discounts).
When participants were shown prices presented as discounts off standard rates, they chose the cheapest option 54% of the time. But when they were shown actual unit rates, they chose the cheapest option 80% of the time.
We’ve all been confused by electricity prices and bills in the past, but the ESRI’s findings prove that this confusion has, in many cases, led to costly wrong decisions.
In a second experiment, 40 consumers were shown a series of ads, some of which included an estimated annual bill for average users expressed in euro terms, others of which didn’t.
Unsurprisingly, participants were more successful at accurately identifying good value when the estimated annual bill was displayed. And as it happens, when the estimated annual bill was presented with the same prominence and font as other pricing information, accuracy improved further.
These findings bode well for us consumers. We can expect to see a clear estimated annual bill the next time we’re presented with printed advertising or marketing material. From mid-2018, suppliers will also have to include an estimated annual bill on radio and TV ads.
The CRU’s decision to require Ireland’s electricity suppliers to display an estimated annual bill in their marketing material is good news for consumers and a big step forward in improving transparency in the domestic market.
The final price a customer pays for electricity is made up of a large number of items - unit rate, standing charge, PSO levy, VAT and, in some cases, a prepayment service charge. With so many things to consider, it can be very difficult to make informed decisions, and the ESRI’s research confirms this.
Thanks to the CRU’s new regulation, it will be much harder for suppliers to spin their offers as better value than they actually are and to confuse consumers into making costly bad decisions.
Greater transparency in the electricity market will allow households to make informed decisions when choosing a supplier and, ultimately, to save money on their bills.
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