Energy retailers urged not to return to ‘fight for lowest tariff’

Energy retailers must not return to a “fight for the lowest tariff” when pricing competition returns, according to So Energy executive director Charlie Davies.

Speaking at UW Customer Summit this week, Davies said he was looking forwards to healthy competition returning but urged the market to learn from previous mistakes.

He said instead of offering customers basement prices, retailers must ensure that they are generating enough money to reinvest in research and development.

“We all felt at the time, and we can all say with certainty now, that the way the market was before [the energy crisis] was unsustainable,” Davies said. “No one wants it to get back there.”

He added: “It has got to be a healthy market that enables retailers to invest in new innovation.

“We’ve seen that over the years that you would have a budget allocated to innovation and trying new things but when you are constantly fighting against low marginal tariffs then that pot shrinks every year and nobody moves forward.”

The launch of the Energy Price Guarantee (EPG) in October eroded what was left of price competition in the market, further dampening appetite for switching. Over the whole of 2022 switching activity was down 73%.

However, last month, experts at Cornwall Insight predicted that competition could resume “within a matter of weeks”. And earlier this week, switching statistics released by Energy UK showed the retail sector is showing early signs of recovery with switches up 55% year on year in February.

While agreeing that some level of competition will return to the market this year, Davies warned against introducing fixed tariffs too soon.

He said that doing so could result in customers paying over the odds, with wholesale prices and the energy price cap expected to fall again later in the year.

Davies comments echo sentiments made by EDF managing director Phillipe Commaret who previously told Utility Week that competition is not yet in the best interest of customers.

Davies added that as well as being judged on their price points, retailers should be assessed against their sustainability credentials with increasing numbers of customers wanting to know where their energy comes from.

He said this would help to avoid a race to the bottom where lowest price triumphs all else.

“What customers look for in their retailer is going to be above and beyond an outright cheap tariff,” Davies said. “In the new world of energy we would like to see more of a focus on sustainability […] that doesn’t really feature on major consumer review sites such as Trust Pilot right now, they tend to focus on price and customer service but sustainability isn’t really mentioned anywhere.”