Industry shake-up

Why it’s time for change within the energy market. By Phil Ivers

Numerous acquisitions, key market mergers, independent supplier growth and the fight against ‘sleeping’ customers on standard variable tariffs; there’s certainly significant changes happening within the UK energy market.

Over recent years the market has witnessed the government review energy bills with a fine-tooth comb as well as the Big Six’s market share dropping to a record low of 79 per cent for electricity and 78 per cent for gas in December 2017, and as they continue to come under fire from both the media and the general public, they continue to bear the brunt of regulation changes and industry issues. The Big Six’s superiority within the industry is still significant but decreasing, paving the way for new entrants and challengers offering more competitive deals.

Research from Energy UK found that half a million UK customers switched energy supplier in April this year, bringing the total 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 users change provider. With more and more small independent suppliers appearing on price comparison sites, including regional specific suppliers and others offering incentives such as £50 just for signing up, it’s unsurprising that customers are considering switching provider.

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

Whilst the majority of independent suppliers focus efforts solely on supplying energy, organisations including supermarkets, housing associations, charities and councils are also getting in on the action, providing gas and electricity in a bid to generate a new revenue stream as well as building customer loyalty by offering them an additional service. It’s becoming an increasingly crowded marketplace and after traditionally focusing their efforts on the domestic market, independent suppliers are beginning to target SMEs. Although there’s still a lot of reluctance from smaller businesses to switch energy suppliers, quotes for new energy contracts are easier to access and customers are beginning to wake up from their contract slumbers with the aim of finding a better deal.

Changing market
The energy market is also set to face changing regulations set out by Ofgem and the Government. As well as this, the price of gas and electricity continues to fluctuate and is set to rise once more as the UK heads towards its coldest months. The winter of 2017 witnessed the National Grid warn that the UK could potentially run out of gas as the market attempted to keep up with public demand. This resulted in prices for ‘within the day’ delivery rising nearly 400 per cent to their highest in 20 years. And as the industry ensures it has enough energy to meet the demands of another gruelling winter, new entrants to the market face being caught out due to a lack of credit or wholesale agreements to purchase enough energy to meet customer demand.

A wealth of independent suppliers is flooding the market, causing the playing field to level out. However, as some independent suppliers focus their efforts on the smaller customers, the more established B2B suppliers within the market have clung on to their UK contracts with large industrial businesses, which isn’t set to change anytime soon. But how will the Big Six respond to these market changes and fight back against its decreasing market share?

Energy giant Npower’s acquisition of SSE in a deal worth a reported £3bn, will see its customer base increase to an impressive 11.5m, and will see the Big Six reduce down to five. Other big energy suppliers are boosting revenues through sales of smart meters, boiler cover, energy servicing and much more. 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 over the market.

The energy market is forever changing. 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 demands throughout the seasons. The next six months is set to be a real test for the whole of the market, and it will soon become clear who is here to stay.

Gazprom Energy
Phil Ivers is head of customer optimisation at Gazprom Energy. Gazprom Energy is a leading and award-winning supplier of gas and electricity to businesses across the UK, with a passion for customer service and the backing of one of the world’s largest energy companies.

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