An increasing number of established energy suppliers risk losing out if they don’t adapt to embrace a more customer-centric energy market, a leading energy expert has warned.
The warning from Paul Dight, energy partner at global law firm Addleshaw Goddard follows recent statistics which show record numbers of people switched energy supplier in 2018 , with 1.7 million customers moving to small and mid-sized suppliers.
It also follows the recent failure of several energy suppliers including Extra Energy, Spark Energy, Economy Energy and most recently Our Power, demonstrating that there are problems for smaller suppliers as well.
Volatility in the supply market saw 13 energy suppliers cease trading since January 2018, with Ofgem forced to step in and instruct the supplier of last resort (SoLR) process.
The record number of customers switching supplier coincides with an uptake of smart technology, such as smart meters, empowering customers to better understand their energy usage, shop around and ultimately swap providers.
Paul Dight said he believed consumers engaging more with their energy usage was a trend that would continue as smart meters, comparison websites and switching platforms become more widely used – and that this posed a significant challenge for even the biggest suppliers hoping to retain their market share.
He said: “Suppliers across the UK face differing challenges dependant on size, but one thing they all must get a grip on is the increasing willingness of consumers to switch. For traditional suppliers this, coupled with new tech savvy suppliers entering into the market, poses a significant risk to their market share.
“If they aren’t able to accommodate the consumer of tomorrow and adapt to thrive alongside the raft of more nimble new entrants, we are going to see a big shake up in the traditional customer base.”
Another key change shaping the future of the supply market is the energy price cap.
Ofgem recently announced it is increasing the energy price cap from 1 April after just six weeks. The cap will rise by an average of £117 per household per year, demonstrating that trying to regulate a competitive market is not an easy task.
Paul added: “Ofgem say the latest increase is necessary. It reflects higher wholesale energy costs (due to oil and gas prices increasing recently) and customers are still better off than they would be without the cap. The amount of profit a supplier is allowed under the cap hasn’t changed; that remains at 1.9 percent. However, the move to increase the cap will – rightly or wrongly – inevitably undermine confidence in its ability to protect customers, in particular the most vulnerable customers, from price hikes.
“The cap only applies to standard variable tariffs and default tariffs: those suppliers who can offer a range of tariffs to suit the needs of their customers don't have to worry (although obviously they will want to offer tariffs below the cap, to attract new customers). The losers will be the "big six" suppliers, with the most "sticky" customers who have not switched to a better deal: they are the ones the cap will apply to.”
Addleshaw Goddard recently published a report on disruption in the energy market. The full report is available to download here: .