Switching surge predicted for second half of 2023

Analysts are predicting a boom in customers switching energy supplier from this summer, driven by the relaxation of government support and falling wholesale power prices.

However, this has sparked fears that Ofgem’s Market Stabilisation Charge will end up acting as a blocker to the most competitive tariffs.

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, analysts at Cornwall Insight have predicted that with the average household bill under the EPG set to rise to £3,000 from April and decreasing wholesale prices lowering supplier costs, there is a good chance suppliers will be able to offer tariffs under the government’s cap. This could begin to happen “within a matter of weeks”, they say.

Using the average switching rates from the two years up to October 2019 as a baseline, Cornwall Insight estimates that approximately 5.5 million likely switches were avoided. It sees this as an indicative figure of the number of households that may be ready to switch when competition ramps up again.

However, it cautions that if the wholesale market volatility experienced in 2022 returns, it could become “uneconomic or impractical” for suppliers to offer the kind of competitive tariffs in question.

Analysts warned that if switching does begin to ramp up again it could call into question the effectiveness of Ofgem’s Market Stabilisation Charge. This sees suppliers taking on new customers required to pay a fee to the losing company if wholesale prices fall significantly below the price cap level. This could limit the price drops suppliers can offer, they speculated.

The research was, unsurprisingly, welcomed by Uswitch whose director of regulation, Richard Neudegg, said: “With wholesale prices stabilising, though still high compared to past years, there is an opportunity for suppliers to start offering more competitive rates.

“Bill payers need the option to fix their deals again or switch away from their current supplier if they want to, just as with the mortgage market where customers have both variable and fixed rate options over different time periods.

“However, the market stabilisation charge implemented by Ofgem, which hits suppliers with charges every time a customer switches provider, alongside other measures, is actively disincentivising suppliers from offering competitive deals.”