Ofgem will make sure new entrants are up to the job

“We are reviewing our arrangements for new suppliers entering the market, to ensure they provide a decent level of customer service and are financially viable.”

Ofgem’s recently published annual State of the Energy Market report demonstrates that more consumers are benefiting from competition in the energy market.

Over the past decade, more suppliers have entered the energy market, offering new, innovative tariffs and services, helping to drive down prices for ­consumers across Great Britain. This has been aided by the introduction of new “auto-switching” intermediaries, which find better deals for consumers who sign up, and smart meters helping customers better understand their energy use.

The market share of the six largest suppliers, who used to totally dominate the market, has now fallen to its lowest yet at around 75 per cent, as more people switch to get a better deal.

In total, the six largest suppliers lost 1.4 million customers over the past year to small and medium-sized rivals. The profits of these suppliers also fell for the first time since 2014 – by 10 per cent, to £900 million.

In future, it’s likely we will be talking about the “big five”, not the “big six”. The day we launched our report, the Competition and Markets Authority (CMA) approved the merger between SSE and Npower to create a new supplier.

This will mean significant changes in the current market structure when there are two larger suppliers of similar size – the newly merged supplier and British Gas supplying around half of all households. They’ll be followed at some distance by the remaining three large suppliers and medium-sized and small suppliers.

But as their market share falls, the larger suppliers can no longer be complacent and need to up their game by providing more products, better customer service and a truly competitive price, otherwise consumers will continue to vote with their feet.

While competition is ­working for more ­consumers, particularly those who engage, the market is still not working for many. ­Vulnerable consumers in ­particular are still paying over the odds for their energy.

As well as extending the prepayment meter cap to protect another one million customers earlier this year, Ofgem plans to have the wider price cap in place to protect a further 11 million consumers this year.

But our work goes beyond introducing price caps.

Fol ing on from the CMA’s investigation into the market, Ofgem is carrying out trials to help customers on expensive deals to switch, for example through our simplified collective switches.

We are also introducing faster switching and compensation for when switching goes wrong, which we hope will help encourage more people to find the best deal for them and switch supplier.

However, we recognise that some suppliers’ customer service levels need to improve. In particular, we have seen that while some small suppliers tend to outperform larger suppliers in this regard, others have not invested in customer service resources as they grow, leading to a decline in standards.

Not only do the larger suppliers need to offer more competitive prices and products, but the smaller ones need to ensure they have robust systems in place to operate in a fully competitive market.

Ofgem exists to make sure that suppliers are acting in the best interests of consumers and that the latter are protected if anything goes wrong. With the changes we have seen in the market over the past decade, we are reviewing our arrangements for new suppliers entering the market, to ensure that new entrants coming into the market provide a decent level of customer service and are financially viable.

In November, we’ll publish a consultation on our supplier licensing review to address this. We will review our approach to issuing a licence, to increase confidence that new suppliers can meet expected customer service standards, and to consider what financial information may be appropriate to obtain from those entering the market.

We will also consider what ongoing support, engagement and monitoring of suppliers’ conduct and financial stability is needed, as well as the Supplier of Last Resort process.
In the coming years, we expect more consumers will benefit from competition, and the lower prices and choice of new services and products that will result. At the same time, Ofgem will continue to protect ­consumers, particularly the vulnerable.