NEWS

When the energy monopolies were broken up and competitive markets were introduced in the 1990s, the aim was that suppliers would compete with each other to offer consumers better deals. It was supposed to lead to win-win situations, where the suppliers that delivered the best customer experiences would succeed, while consumers benefit. 

However, Ofgem’s latest Change of Supplier (CoS) report indicates it isn’t working. Fewer consumers are switching energy providers, while larger suppliers dominate the marketplace at smaller players’ expense. Industry experts believe that this situation is unlikely to change in the foreseeable future. What can be done?

In this article, we’ll look in more detail at Ofgem’s switching figures – and why they matter. Let’s get started

Latest figures

October 2024 saw higher numbers of energy switchers than in recent months, with 475,000 customers changing their suppliers. However, this has proved to be a false dawn as the marketplace has not been able to sustain this level. In November, only 265,000 switches were recorded. 

There are several reasons for this drop-off. In October, a lot of household energy tariffs come to an end, so customers will shop around for a new deal. On the other hand, in November, people have their thoughts on Christmas rather than their energy supplier. However, industry experts believe the low number of switchers is ‘the new normal’, with the market not predicted to pick up again until the spring.

In addition, an eye-catching section of Ofgem’s report is where they record where customers are switching from and where they’re going:

• Large suppliers to large suppliers – 175,000
• Large suppliers to others – 37,000
• Others to large suppliers – 41,000
• Others to others – 14,000

You can see that ‘other’ suppliers – essentially the smaller players – lost 4,000 customers to larger firms during November. At the same time, the vast majority of switchers are swapping one large supplier for another. If this carries on, the domination of larger companies will grow even further.

Why it matters

It’s clear that the dominance of five large companies at the expense of everyone else is not a sign of a healthy, competitive marketplace. It reduces competition and choice for the consumer. 

If the big players only continue to get bigger, these problems will be exacerbated. It will lead to smaller firms being squeezed out of the market, leaving their customers stranded, waiting for the big firms to snap them up. Many small energy firms went under during the 2022 energy crisis. It’s not good for those that survived to be in even greater danger.

Ofgem has reacted to these figures by playing down the industry’s worries. In 2024, Ofgem’s Deputy Director said that while switching numbers are important, there are other metrics that can be used to measure competition in the sector.

Looking to the future

What can be done to promote more competition in the UK’s energy marketplace?

Ofgem is considering relaxing the rules around acquisition-only tariffs, where suppliers can offer big discounts to new customers to tempt them in. Currently, these tariffs are prohibited. There are advantages and disadvantages to acquisition-only tariffs. Critics say they penalise consumers who are not savvy with their energy tariffs, as when your introductory offer expires, the price you pay can rise dramatically. On the other hand, if you have your fingers on the pulse, you can make significant savings.

Ofgem will publish more data in January to show how suppliers are performing with smart meter installations and whether (or not) they’re hitting their targets. When those figures are published, we’ll tell you all about them. Stay tuned.