Switching figures show competition can thrive with BAT

The latest electricity switching stats show “it is perfectly possible” to have a competitive energy retail market with the ban on acquisition-only tariffs (BAT) in place.

Rachel Fletcher, Octopus Energy’s director of economics and regulation, was responding to the latest figures from Electralink which show switching in April soared to the highest level since October 2021.

There were 287,000 switches completed last month – 28% more than the month before and a 45% increase on April 2023.

Octopus has been one of the retail sector’s most vocal critics of Ofgem’s minded to position to lift the BAT, which prevents suppliers offering cheaper deals exclusively to new customers, in October. It is currently scheduled to run until 31 March 2025.

“These stats show it is perfectly possible to have competition with the ban on acquisition tariffs in place. Where there are wholesale cost reductions and efficiencies available, suppliers will pass these through to customers, both to gain new customers and to keep existing customers for longer. And that’s what we’re beginning to see,” Fletcher told Utility Week.

Equally, she said, with the BAT in place, the sector needs to be thinking differently about what “good” looks like and added that a “healthy market is not one that only rewards customers that frequently switch supplier. It’s one where everyone benefits from lower prices because some customers switch”.

She continued: “Over 80% of the country now are on price capped SVT deals. The marker of the market starting to reinvigorate again is not how many people are switching supplier, it’s how many people are getting off the SVT. We know that many, many more people are prepared to switch tariff with their existing supplier than want to go through the rigmarole of changing supplier in order to get a good deal.

“If you remove the BAT and you have acquisition only tariffs again then you are effectively precluding all of those people who are prepared to switch tariffs with their supplier from going back into the market. You may get low price deals and switching between suppliers but you’ll get fewer customers off price capped products and benefitting from competition overall. Removing the BAT is a decision to live with a shrunken market.”

The issue of removing the BAT was discussed at Utility Week Live in Birmingham earlier this week, when Octopus chief executive Greg Jackson said the experience of switching energy deals should be similar to how a customer chooses a supermarket.

“We need to have an energy market that works much more like that, where your stimulus is based on your experience,” said Jackson.

“We switch for service and we switch for value. But we shouldn’t have these artificial contracts based on some sort of assumption of our spend, offering us a teaser deal that will disappear the moment we’re not looking. This is terrible for consumers,” he added.

It comes as a recent poll commissioned by So Energy found that nine in 10 customers and 71% of MPs oppose the BAT removal, while a similar survey by Eon Next found 93% of UK consumers agree that energy companies must not restrict their best deals to new customers.

Chris Norbury, Eon UK chief executive, said: “It’s clear from this research that customers want the ban to remain in place. It also illustrates the concern I have that removing the ban undermines customers’ trust.

“Small-scale tweaks to the energy system do not support vulnerable customers and won’t help decarbonise our energy system at pace. What we need is a longer-term package that brings together price protection for those who need it most and incentivises innovation that helps make energy affordable and sustainable for everyone.”

Yet Electralink says its dataset insight proves that the BAT is discouraging supplier switching volumes. Despite his company’s figures showing a resurgence in switching, Electralink’s chief data officer Paul Linnane believes that the BAT is having a negative impact on consumer behaviour.

“Switching has been limited since the Covid-19 pandemic ebbed away and the energy price crisis emerged. Whilst the recent increase in switching highlights that demand for cheaper and innovative tariffs is increasing, I believe that the BAT is still limiting that demand,” Linnane told Utility Week.

He added: “Electralink’s switching data identifies that the majority of consumers would be outside their fixed term with their supplier.

“Furthermore, our analysis of our unique switching dataset highlights that, pre-energy crisis, the time window between a consumer switch reduces every time a customer switches.

“Therefore, with all customers currently outside of their fixed tariff window, we’d actually expect to see “record levels” of switching if acquisition tariffs were available.”