November 2, 2017
Energy market regulator, Ofgem, has released a report on the State of the Energy Market.
The report highlights three concerns Ofgem has:
1. The market works well for engaged customers that actively search for cheaper deals but too many are missing out.
2. Consumers paying the highest prices are often those least able to afford it.
3. The progress to ensure clean and secure electricity suppliers has come at a higher cost than necessary.
Competition continues to benefit consumers who are able and willing to shop around, meaning they can usually get a good deal.
As of June 2017, there were 60 suppliers offering electricity and or gas, 16 more than a year earlier. Since 2012, new suppliers have increased competition, reducing the six largest energy suppliers' share of the market from nearly all consumers to just over 80% of them. Switching and engagement are increasing and annual household switching rates reached almost 17% in June 2017, the highest since August 2011.
This is all positive but Ofgem is concerned with the consumers that aren't switching. The ones who remain on defaults tariffs and pay much higher prices.
Ofgem found 58% have never switched supplier or have switched only once. For a typical household, a standard variable tariff costs about £300 more each year than the cheapest tariff available and Ofgem has found that 60% of all consumers are on a default variable tariff.
Ofgem is working to make the current switching process quicker and easier so that the retail markets work better for everyone. They are looking at the case for more use of collective switching with the hope it will enable less engaged consumers reap the benefits of competition.
In the energy market consumers with low incomes are much less likely to switch to a cheaper energy supplier.
There are a number of support schemes like the Warm Home Discount that help some vulnerable consumers, particularly pensioners but Ofgem's report highlights that identification of and support of other vulnerable groups are not yet good enough.
The challenge is to protect vulnerable customers but also engage them in the market more effectively. Ofgem is currently consulting on extending their safeguard tariff to a further 1 million vulnerable consumers this winter.
On average, consumers currently pay about £90 each year towards environmental policies. This will rise as low-carbon generation increases. Rapid falls in the costs of wind and solar generation show the scope for competition and innovation to limit future cost increases. But in the future, consumers will lose out if there isn't effective competition for low-carbon support schemes and for measures to help the energy system to work effectively.
Ofgem's report says that innovation must be harnessed in ways that bring benefits to all consumers. With more and more people harnessing their own electricity and having more control over their consumption using smart meters.
Traditionally, energy suppliers manage most interactions with consumers and the wider-market but peer-to-peer energy trading and greater customer ownership of their data should allow customers different ways of engaging with the energy system.
The report says that the UK's biggest energy suppliers made a profit of £1bn last year and have increased their profit margins in the last few years, despite losing millions of customers to smaller companies. The "Big Six" energy suppliers enjoyed a healthy margin, on average, of 4.5% in 2016 by charging customers high prices to loyal customers that have not considered switching energy suppliers.
Energylinx would like to invite everyone to compare energy supplier's tariffs and see what they could save. You can do it online or by calling one of our advisors on 01259 220000.
Posted on November 2, 2017 at 11:00 AM