Ongoing talks between two of the UK’s ‘big 6’ energy suppliers, could see around 5.7 million household customers being transferred. Talks have been confirmed between OVO Energy and SSE, with the former looking to massively increase its current 1.5 million household customers. It has been reported that an offer of £250 million has been made to SSE, who could well be keen to offload their struggling domestic portfolio.
SSE attempted an ambitious merger with Npower in December 2018 which dealt a major blow to SSE when it failed. In anticipation of that deal, SSE had made the household arm of their business a separate entity from other interests such as renewable energy and it’s energy distribution network. This has rapidly become less profitable over the last few years with growing competition and the energy regulator’s price cap being touted as the main reasons that profits from domestic customers are shrinking.
OVO Energy, a Bristol based company, was founded in 2009 and has grown rapidly over the last 10 years. It’s current market share in the sector is around 3% and this deal could see that rise to 15%, which would launch OVO Energy into the lofty heights of the ‘big 6’. Although a customer base of 7.3 million would still be dwarfed by the British Gas total of around 13 million customers.
Over the last few years, OVO Energy has been quietly expanding its operation. With acquisitions from failed energy supplier’s Spark and Economy Energy being recent examples of the companies ambitions. However, this most recently proposed deal with SSE would make OVO the second biggest player in the market in a move that will, if it goes through, send huge waves throughout the sector.
Whilst no finalised deal has yet been announced, speculation and conversation is rife throughout the media, the energy regulator OFGEM, and curious or apprehensive customers. This proposed deal would effectively see SSE’s withdrawal from the domestic market while simultaneously OVO energy would dramatically increase its own market share. Overall competition in the sector will inevitably be reduced and that is rarely a cause for celebration amongst the millions of UK consumers that rely on the energy sector. It is yet to be seen, or announced what will happen to customers being migrated from SSE to OVO Energy if a deal is made. Decisions on tariffs are also yet to be made but many customers will be worried about the potential for price rises that may be needed to recoup the capital laid down to complete the deal. OVO Energy will also need to dramatically increase its customer service infrastructure if it is to have the capacity to manage such an increase in customers over such a short time.
This potential deal has laid bare the ambitions of this well established mid-sized player in the UK energy market. However, what is not known is how far OVO Energy want to expand in the long term. With British Gas, the traditional holder of the ‘big 6’ top spot seemingly starting to struggle to hold on to customers, do OVO Energy harbour ambitions to dethrone the king of the consumer market? British Gas lost over a million accounts last year and seem to be unable to halt the exodus away from the company. With these two companies soon to be potentially (if the SSE deal comes to fruition) on dramatically different trajectories, such a shake up cannot be ruled out further down the line.
As far as customers are currently concerned, OVO Energy are rated as a relatively good company. In a recent Which? Survey they were ranked 6th out of 30 energy companies. Compare this with SSE who came 22nd or British Gas who were rated as only the 26th best and you could be lulled into thinking that the impact on customers from this deal might actually be positive. However, the rise in sheer volume of customers is hopefully not being underestimated by OVO Energy who may find their current customers loyalty hard to maintain if any positive experiences are undermined as a direct result of this acquisition. British Gas has pinned the blame for its own woes in the market on various factors such as environmental taxes, the energy price cap and increased competition. These reasons however, fail to take into account that many household customers place a great deal of value in good customer service as well as good value. So although a relatively good performer in customer polls is potentially about to be looking after the accounts of millions more customers, it remains to be seen if they will be able to maintain these high scores or if they will become yet another faceless corporation at the top of the market aiming to stifle competition. If this happens it is entirely possible that more and more customers will continue the current trend and will migrate away from the traditional ‘big 6’. Instead switch to one of the growing number of smaller suppliers that are currently managing to consistently top customer satisfaction surveys.