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Smaller suppliers will find it more difficult to gain customers from the big six over next few years as the market becomes less favourable, Morgan Stanley has warned.
In a report, the bank predicted that market conditions will worsen for independents, meaning they will struggle to gain market share in the same way as they have done in recent years.
Analysts said the decline in wholesale gas and power prices in 2015 gave smaller suppliers an advantage over larger ones, as independents tend to purchase energy at shorter notice than the big six – which typically buy for one or two years ahead. This means they have been able to buy at lower prices, and therefore offer cheaper tariffs.
With wholesale prices levelling out since the beginning of the year and recovering in recent weeks, analysts said “prevailing conditions may not be so helpful” looking ahead.
There are other reasons to believe the growth of smaller suppliers may be muted in coming years, the report said.
Several big six suppliers have had to deal with problems replacing old billing systems – issues which have not troubled the newer suppliers. However, the analysts noted that “some, but not all, of the faster growing suppliers have started to experience customer service issues”.
In addition, they said the largest of the independents “may need to start showing profits, rather than the losses that some have reported”.
According to figures published by Cornwall Energy in March independent suppliers increased their market share by 3.6 per cent over the preceding year.
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