Consumers may be more willing to buy locally with multiple energy suppliers

Consumers may be more willing to buy their energy from a local supplier if they are also able to stay with their current provider at the same time, a new study from researchers at University College London has suggested.

The paper, published in the Energy Policy journal, also indicates that consumers may be more open to signing up with a local company if they are implicitly endorsed by their present supplier.

The conclusions were derived from an online survey of 1,200 people who were selected to be representative of the national population of Great Britain, with quotes for age, gender, region and social grade. Participants were subjected to either one or two experiments.

In the first, the respondents were divided into three groups. All three received a hypothetical letter from their current supplier telling them it has partnered with a new local energy company to offer their combined services at no extra cost.

The first group of 450 people were told they would remain with their current supplier by default but were also given the option to sign up with the local company as well. The second group, also consisting of 450 people, were told they would be automatically enrolled with both companies and would need to take action to switch back to only being with the current supplier. The third group of 300 were presented with both options neutrally and told they must make a choice between the two.

Contrary to the researchers expectations, the majority of participants in all three groups opted for the multiple supplier model. The proportion was highest in the second group (84.3 per cent) and lowest in the first (59.6 per cent).

Source: ‘Two energy suppliers are better than one: Survey experiments on consumer engagement with local energy in GB’, Energy Policy

The second experiment involved two groups of 400 people. Both groups received a letter from the new local energy company asking them if they would like to take up their services. The first group were asked if they were like to do this instead of remaining with their current supplier, whilst the second group was asked if they would like to add the services of the local firm to their existing contract.

Participants were more likely to sign up with the local company if they could retain the services of their current supplier (42.3 per cent versus 34.2 per cent) but take up was lower than for all three groups in the first experiment.

Source: ‘Two energy suppliers are better than one: Survey experiments on consumer engagement with local energy in GB’, Energy Policy

According to the paper, the results suggest a “strong preference” for a multiple-suppler model (MSM), noting that this was chosen by a majority of participants in all three groups in the first experiment “even when they had to take action to switch”.

“The second experiment found that participants were statistically significantly more likely to switch to a local energy supplier in an MSM than under the current single supplier model,” it added.

“Contrary to fears that MSMs would increase consumer disengagement, these findings suggest that MSMs are likely to be a promising avenue for driving the growth of local energy and opening up opportunities for innovation in the British energy market.”

It continued: “Whilst the studies were not explicitly designed to test this, willingness to switch was much higher when participants were hypothetically contacted by their current supplier in the first experiment as opposed to a new local supplier in the second. This exploratory finding suggests that the cooperation and support of existing suppliers is likely to be important.”

The paper acknowledged the limitations of experiments based on stated preferences in a hypothetical situation:  “The transaction costs of switching are greatly reduced in a hypothetical environment and it may be that participants felt obliged to choose the MSM and local energy option due to perceived social desirability bias or experimental demand effects.

“However,” it added, “other stated preference studies on switching to ‘green’ energy suppliers have found large and persistent default effects, even in hypothetical scenarios with minimal transaction costs…

“This suggests that the overcoming of default effects in this study is more than an artefact of experimental demand effects. Nonetheless, further research is required to test whether these findings hold in a more ecologically valid environment.”

Ofgem has previously described the present supplier hub model as “not fit for purpose” and suggested fundamental reform may be required. At the beginning of last year, New Anglia Energy proposed a modification to the Balancing and Settlement Code named P379 that would allow consumers to buy and sell energy through multiple parties.