Is the UK energy market returning to normality?

Is the UK energy market returning to normality?

With the price cap coming down and more consumers switching suppliers, should we be optimistic about the future of the UK’s energy marketplace?

The UK energy market has been tough for consumers in the last two years. We’ve seen sky-high prices, little choice in fixed tariffs and a closed market that discourages switching. It’s not been ideal for suppliers either, with many going out of business under the strain. 

However, two pieces of news may provide cause for optimism. Could the UK power market finally be returning to something resembling normality? In this article, we’ll examine these events and look for green shoots in the future. Let’s get started.

A lower price cap?

Industry watchers predict a significant fall in the Ofgem price cap is on the horizon. Currently, the cap sits at £1928 per year for the average household. Experts at Investec and Cornwall Insight have made their forecasts:

  • Investec predictions:
    • Q2 2024 – £1705
    • Q3 – £1641
    • Q4 – £1693
  • Cornwall insight forecast:
    • Q2 2024 – £1660
    • Q3 – £1590
    • Q4 – 1640

The reasons forecasters believe the price cap will fall are that European gas-in-store levels are stable, while the Israel-Hamas conflict in the Middle East has not impacted supplies in the way some observers thought it would.

However, before we start celebrating, it’s worth remembering that the market is still quite volatile and reactive to world events. We also need suppliers to get on board and start lowering their tariffs; so far, minor price falls have not led to better deals for consumers. There are also ongoing consultations about standing charges and bad debt collection costs causing uncertainty in the industry.

While it’s good to see prices coming down to levels only previously seen before the Ukraine invasion, we need to take a long-term rather than a short-term view. The government and the industry must do more to shore up the UK’s energy marketplace, reducing our reliance on imports and ensuring energy suppliers treat their customers well. Only then can we truly celebrate.

Switching on the rise

Next, Energy UK figures show that the number of energy customers switching suppliers reached a two-year high in November 2023. During that month, 191,000 domestic households and 35,000 non-domestic account holders switched their energy suppliers. 

This is a sign the market is correcting after a long period of stagnation where consumers had little choice but to stick with their supplier and pay what they wanted. However, when you dig deeper into the numbers, you can see that it’s the big players who are reaping the benefits. 46,245 customers moved from small or mid-size energy suppliers to large-scale companies, with only 30,000 moving the other way. 

While we’re nowhere near the numbers posted before the energy crisis, when routinely you’d see 400,000 or more customers switching each month, it’s still good to see more people switching. Experts don’t believe we’ll return to those bumper numbers any time soon.

Ofgem is looking at ways to encourage suppliers to offer better deals to customers in order to promote switching, including ending the ban on acquisition-only tariffs (special offers for new customers only). It’s already said it will end the Market Stabilisation Charge (where suppliers winning a customer have to pay a charge to the former supplier ) in March this year.

Like the price cap news, we need to be cautious about the future, but there are reasons to be optimistic.

Looking to the future

While it’s good to exercise caution, especially when the biggest energy suppliers are getting even bigger, this news is still worth celebrating after many months of misery for consumers. Let’s hope the industry can keep the momentum going and deliver win-win situations for both sides.

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