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Why the end of the 'Big Six' hasn't made power any cheaper

By Sam Meadows

The Big Six controlled at least 97pc of the market until 2013 – that has now slumped to 70pc in just a few years

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5 JANUARY 2020 • 5:00AMFollow

05/01/2020 Why the end of the 'Big Six' hasn't made power any cheaper

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Household energy bills have climbed at almost twice the rate of inflation despite

booming competition bringing an end to the dominance of the “Big Six”

providers.

Families paid an average of £571 a year for electricity and gas in 1998, compared to

£1,447 in 2018, according to data from industry analysts Cornwall Insight. This equates

to an annual increase of 5pc a year, while inflation over the same period was 2.8pc.

This is despite the number of companies supplying energy ballooning from eight in

2007 to 61 last year.

In 2013, then prime minister David Cameron bemoaned the lack of competition and

made it easier to set up an energy firm in a bid to turn the “Big Six into the Big 60”. Until

then, the six biggest providers – British Gas, SSE, EDF, Npower, E.On and Scottish

Power – supplied more than 97pc of households. Amid rising competition, this

dominance has collapsed to 70pc.

The heyday of the Big Six now looks to be all but over, after the competition regulator

signed off both the takeover by E.On of Npower and the takeover of SSE by mid-sized

supplier Ovo, which will become the second largest energy firm.

A side effect of the rapid expansion of the market has been the number of suppliers that

have collapsed, leaving customers in the lurch. Fifteen energy firms have gone bust in

the past two years (https://www.telegraph.co.uk/bills-and-utilities/gas-electric/breeze-15th-energy-firm-

two-years-collapse-regulator-plans-greater/), affecting more than a million customers.

Green taxes, smart meters, profit margins:the extras adding £550 to your energy bill

Read more

Although a household’s power supply is not cut off (https://www.telegraph.co.uk/bills-and-

utilities/gas-electric/iresa-collapses-do-energy-firm-goes-bust/) when its supplier fails, some have

05/01/2020 Why the end of the 'Big Six' hasn't made power any cheaper

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found themselves owed hundreds or even thousands of pounds by the defunct

company.

A new supplier is appointed by the industry regulator Ofgem and is supposed to honour

outstanding credit balances, but claiming this is not always straightforward. The cost of

administering this process is also ultimately borne by customers. In early 2019,

Cornwall Insight said this equated to every household paying an extra £6.28 a year.

Last year, in a bid to stem the tide of collapsing energy firms, Ofgem beefed up its

regulations on market entry. Directors and owners must now pass extra checks, with

those who have been involved with a failed company unlikely to be approved.

Mark Coyle, of Utiligroup, said this meant there were far more stringent checks on

suppliers seeking to enter the market.

Utiligroup is a software firm that assists entrepreneurs who want to set up an energy

company, by providing advice and systems infrastructure.

It previously sold companies what is known as a “supplier-in-a-box” – effectively a pre-

existing company with a licence to supply energy. Ofgem’s recent rule change means

suppliers must now apply for the licence themselves. This should ensure firms are on a

more solid footing, meaning less chaos for customers.

Considering switching? The best energycompanies you've never heard of

Read more

Utiligroup has helped 40 firms enter the market, including fast-growing and successful

energy companies such as Ovo and Octopus. However, Utiligroup also assisted some

that fell, including Brilliant Energy and One Select.

Ovo was an early success story. Its founder, Stephen Fitzpatrick, was a former banker

who said he was drawn to energy by the rise in renewables and a bad experience as a

05/01/2020 Why the end of the 'Big Six' hasn't made power any cheaper

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customer.

Mr Coyle said: “The owners of companies like Ovo and Octopus have shown you can

come into energy from outside the market and be successful.”

Not all have been so lucky, although Mr Coyle said Utiligroup was not involved in the

actual running of energy firms.

“We are very careful to protect ourselves and the market,” he said. “We do feasibility

modelling to confirm the funds and people needed. But if the model says a company

needs 20 people and £3m, and the owner comes in and hires 10 people and invests less,

then it’s not likely to succeed.”

Money newsletterPersonal finance news, analysis and expert advice, frompensions and property to investment ideas and savings tips. Sign up

Mr Coyle pointed to a number of reasons for the failure of firms. One company, he said,

had attempted to implement foreign billing systems despite the British market being far

more complicated and costly.

He said another was a “brilliant company”, but its Europe-based parent company went

bust, leaving it with no money.

Another industry insider said one firm collapsed after new management came in and

cut costs, meaning it was no longer able to provide adequate customer support.

Poor customer service has been a killer of several of the energy firms that have gone

bust. Both Iresa and One Select appeared at the bottom of rating tables published by

Citizens Advice, a consumer charity.

The end of cheap deals?

Although the average price paid by households has grown, for the most active

customers who are willing to switch regularly, the cheapest tariffs have always been far

lower. This area of the market is more affected by the number of suppliers going bust.

Cornwall Insight data showed at the end of 2016, the cheapest tariff was £790 a year. By

September last year, after a series of firms had gone bust, this had risen to £864, having

reached as high as £930.

New entrants to the market often offer rock-bottom prices in the hope of rapidly

attracting customers, in turn allowing the company to survive and increase prices down

05/01/2020 Why the end of the 'Big Six' hasn't made power any cheaper

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the line. When this does not happen, the firms run into trouble.

Ed Reed, from Cornwall Insight, said: “Many suppliers could not understand how some

new entrants could offer such low-cost tariffs. They helped them grow customer

numbers but history has since shown this approach often led to poor customer service

and consumer detriment.”

The 10 cheapest energy deals

Uswitch (correct as of Jan 3, 2020)

Supplier Plan name Tariff type End date Green? Exit fe

Utility Point Just Up 19 Wk52 Direct fixed 12m N 72

People's Energy People's Energy 2 MonthsUpfront Winter 19 Tariff v2

fixed 12m Y 60

Outfox the Market One Variable 9.0 variable Y 0

Green Oak variable Y 0

So Energy So Acorn - Green fixed 12m Y 10

Avro Energy Simple and SuperSave fixed 12m N 0

E.ON Fix Online Exclusive v22 fixed 12m Y 60

Nabuh Energy Zara Tariff (12 Month Fixed) fixed 12m N 0

Green Network Energy GNE Cosy Christmas fixed 12m N 50

British Gas Energy and Boiler Cover Jan2021

fixed 31/01/2021 Y 60

There are still savings to be made by those who are willing to switch. Ofgem’s price cap

is currently set at £1,179 a year for the typical user and this will change in line with the

cost of wholesale energy. Many suppliers have priced their variable tariffs at the level of

the cap.

The cheapest tariff on the market is £829 with Utility Point, according to switching

website uSwitch, although it comes with a £72 exit fee. The cheapest tariff with no exit

fee is £842 with Outfox the Market.

This means the typical customer could save £337 a year by changing their supplier.

Rik Smith, from uSwitch, said the Big Six are currently offering some of their cheapest

deals for years as the wholesale cost of energy has fallen in the past three months.

05/01/2020 Why the end of the 'Big Six' hasn't made power any cheaper

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“It’s likely that we will see a small fall in the level of the price cap on standard variable

tariffs when Ofgem announces the new level in February,” he said.

“The exchange rate, charges for green energy and maintaining the energy network, and

geopolitical events such as tensions in the Middle East could also affect your bill.”