Time for change in the energy market

By Phil Ivers, head of customer optimisation at Gazprom Energy

Independent supplier growth, key market mergers and acquisitions, and an end to ‘sleeping’ customers on standard variable tariffs; there’s definitely change afoot in the UK energy market.

This evolving market has seen the government scrutinise energy bills as well as the big six’s market share dropping to a record low of 79 percent for electricity and 78 percent for gas in December 2017, and as they continue to come under fire from both the media and the general public, bearing the brunt of regulation changes and industry issues. The big six’s dominance in the industry is still significant but reducing, paving the way for new entrants and challengers promising more competitive deals.

According to Energy UK half a million UK customers switched energy supplier in April this year, bringing the total number to just below 1.8 million. And this appears to be a long-term trend, as last year saw a record breaking 5.5 million energy customers – one in six – change provider. With more and more small independent suppliers appearing on price comparison sites, including regional specific suppliers and others offering tempting incentives such as £50 just for signing up, it’s unsurprising that customers are being lured into new contracts.

Customers want an energy contract that is simple and easy to understand and as they become progressively active in seeking out better deals, and it’s the independent suppliers that seem ticking all the boxes for those looking to switch. As a result, there’s an increasing number of independent suppliers edging their way into the top 10 energy suppliers for both the domestic and business markets. Recent data from Simple Switch found that independent providers such as Ecotricity and Good Energy are topping the list compared to the traditional big six players such as  npower and Scottish Power who have fallen down the rankings.

While many independent suppliers are focused solely on supplying energy, now supermarkets, housing associations, charities and councils are also muscling in on the action, providing gas and electricity in a bid to generate a new revenue stream and also building customer loyalty by providing them with an additional service. It’s becoming an increasingly crowded market and traditionally focusing their efforts on the domestic market, independent suppliers are now, also beginning to target SMEs. While there is still a lot of reluctance from smaller businesses to switch energy suppliers, quotes for new energy contracts are easier to access and customers are slowly waking from their contract slumbers with the intention of finding a better deal elsewhere.

The industry also faces changing relegations set out by Ofgem and the Government. Alongside this, the price of gas and electricity continues to fluctuate and is set to rise once more as the UK heads towards it’s coldest months. The winter of 2017 saw the National Grid warn that the UK might run out of gas as the market attempted to meet public demand. This resulted in prices for ‘within the day’ delivery rising nearly 400% to their highest in 20 years. And as the industry ensures it has enough energy to meet the demands of another gruelling winter, these new entrants to the market are at risk of being caught out due to a lack of credit or wholesale agreements to purchase enough energy to meet customer demand.

There’s certainly a wealth of new players entering the market, which is seeing a levelling out of the playing field. However, as the newer independent suppliers focus efforts on the smaller customers, the more established B2B suppliers within the market have hung on to their UK contracts with large industrial businesses, and this isn’t going to change anytime soon. But how will the big six respond to these market changes and fight against its decreasing market share?

Npower is set to acquire fellow energy giant SSE in a deal worth a reported £3bn, increasing its customer base to a staggering 11.5m, and reducing the big six down to five. And the other big suppliers are boosting revenues through sales of smart meters, boiler cover and energy servicing. This business model allows them to evolve with the industry, including setting up their own network of independent suppliers. By doing so, the big six can expand their market share and retain their hold on the market.

The energy market is always on the move. With new suppliers entering the market and the big six becoming five, businesses need to ensure the provider they chose, big or small, has a good knowledge of the industry and is able to meet their energy needs. The next six months is likely to be a real test for the whole of the market, and it will soon become clear who is here to stay. Watch this space.