When the time comes to switch energy company, consumers are faced with the often surprising fact that today there are over 60 energy suppliers available to UK customers. Do a little more research and . Leaving the industry as a whole facing bills worth in excess of a staggering £170 million and almost a million combined business and household customers being forced to move to a different supplier.
The ‘Big 6’
In this age of ultra regulation, figures like these are hard to fathom. Especially when you consider that not so long ago the rise in energy supplier numbers was being lauded as a huge success. As recently as 2014 the ‘Big 6’ energy suppliers held a combined 95% of the UK energy market which was bad news for consumers. OFGEM, the government regulator for gas and electricity, was in the midst of a major investigation into how the big players were actively stifling any competition and ensuring that they maintained a stranglehold on the sector. Today, due largely to policy changes which have allowed more competition and the popular ‘faster switching’ and ‘tariff safeguard’ mechanisms, that share had fallen to 75% in 2018. With new suppliers like Bulb Energy reaching over 1 million customers.
Which energy suppliers have struggled recently?
Why then, as the evidence seems to show, has the ground soured at the bottom of the market. More importantly, do consumers looking for a better deal amongst this plethora of newbies need to be worried?
The most recent energy supplier to collapse was Solarplicity, which ceased trading last week. This followed months of difficulties for the firm which had led to an internal decision to hand over 43,000 business and domestic customers to rival supplier Toto Energy back in July. It would appear that Solarplicty had been in trouble for several months. Complaints to OFGEM rising sharply this year from around 1,000 across the whole of 2018 to over 3,000 in the first 7 months of 2019.
Add to that, further issues relating to customer switching, failure to issue refunds and unpaid bills in relation to renewable energy subsidies and the regulator felt it was necessary to take action. This was by initially banning the company from accepting new customers all the way through to a recent announcement that Solarplicity’s remaining 7,500 domestic customers are to be transferred to EDF as part of the OFGEM ‘safety net’ mechanism.
What are the causes?
David Elbourne, Chief Executive of Solarplicity, had put the main reasons for the collapse down to an overly crowded, overly regulated marketplace and believes that OFGEM was overly zealous in its interventions.
Of course, starting any new business is never going to be an easy ride but today’s energy market has a multitude of challenges that has contributed to the supplier collapses. Although the reasons given by various CEO’s, OFGEM and disgruntled customers differs between each individual case, one overarching problem is instability. The market in general has seen volatility in wholesale prices for the last few years and this can have a devastating impact on the bottom line of any company. None more so than with new start-ups, which will not have access to the resources and deep pockets enjoyed by more established companies. This is of course, not the only volatility issue faced by the sector. The regulator itself, especially combined with ever changing government policy, is also having a major impact on profitability.
Green taxes have been widely reported on and although potentially a source of increased expense, they are largely understood by the sector and the costs are generally passed on to customers. However, ever changing ‘Green Initiatives’ have proven to be more of a challenge to calculate into profit margins. Schemes such as the ‘Green Deal’ were released to great fanfare way back in 2013 but never taken up in great numbers. This initiative provided a government financed home improvement scheme and could be lucrative for energy suppliers and gas fitters alike. However, due to the poor take up, amongst other reasons, the government funding was removed.
Despite the scheme still being active, albeit without the government funding, it is all but consigned to history as the profit to be gained the scheme is now so low. In response to it’s demise, OFGEM has now introduced the Energy Company Obligation (ECO), which offers a similar spec sheet to the ‘Green Deal’ when it comes to what it wants to achieve. The main difference being that the funding now comes directly from the energy suppliers. Changes like these risks hindering newly established suppliers that modelled their business around a particular scheme, only to see projected profits evaporate at relatively short notice and have been a strong contributing factor in several of the collapses.
What if my energy company collapses?
It is said that the only constant in life is change, so it is unlikely that things will get any easier for Energy Suppliers. This is not necessarily a bad thing, as challenges often lead to innovation and better competition. The regulator also now has experience in dealing with these instances and is proactively working to ensure it has more robust procedures in place to monitor the sector and protect consumers.
Although there is still work to be done here, not least in ensuring that any customer in credit with a collapsed company get their money back faster, there are now safeguards in place to ensure that a customers power will not be disrupted, regardless of the fate of any supplier. The advice from OFGEM, if you are affected, is to sit tight. Take meter readings in preparation for your automatic switch, which will be facilitated by OFGEM and will ensure a smooth changeover. Once this has been completed you will then be free to find the best deal for you with the supplier of your choosing. If you have a pre-paid meter, you will still be able to make payments as normal whilst the switch is progressing.
What’s being done?
This summer saw the launch of OFGEM’s consultation on the requirements for existing suppliers. This is designed to help bolster the newly introduced checks required for start-up energy suppliers, with the aim of ensuring more stability for consumers. Emphasis is being placed on ensuring that any new regulations will not stifle competition or innovation in the sector, which would potentially undo the good work already achieved in loosening the stranglehold held by ‘the big 6’. Part of this is the new ‘fit and proper’ test being applied to any new energy supplier before it is allowed to begin taking on customers.
All of the work going on behind the scenes to strengthen stability in the energy sector has ensured that consumers can continue to shop around for the best deal, safe in the knowledge that the regulator is ensuring that all suppliers are operating in a responsible and sustainable way.