Addleshaw Goddard's energy partner Paul Dight warns more UK utilities risk joining the likes of Spark Energy and Economy Energy if they don't embrace the changing market
More UK energy suppliers risk going bust if they don’t adopt a more customer-centric approach, an expert has warned.
Since January 2018, more than ten firms, including Spark Energy, Utilitywise and Economy Energy, have fallen prey to rapidly-shifting market conditions.
Global law firm Addleshaw Goddard’s energy partner Paul Dight says: “Suppliers across the UK face differing challenges dependant on size, but one thing they all must get a grip on is the increasing willingness of consumers to switch.
“For traditional suppliers this, coupled with new tech savvy suppliers entering into the market, poses a significant risk to their market share.
“If they aren’t able to accommodate the consumer of tomorrow and adapt to thrive alongside the raft of more nimble new entrants, we are going to see a big shake up in the traditional customer base.”
What are the challenges facing UK energy suppliers?
Mr Dight bases his argument off recent statistics which show record numbers of people switched energy supplier in 2018, with 1.7 million customers moving to small and mid-sized utilities.
Meanwhile, the increase in consumer autonomy, courtesy of tools like the smart metre, price comparison websites and switching platforms, have given customers a clearer picture of their own energy usage, leading to further movement between suppliers.
The energy price cap, announced by Ofgem and set to come into force from 1 April, also poses questions to suppliers in the UK market.
It will rise by an average of £117 per household per year, highlighting the difficulty involved with regulating a competitive field.
“Ofgem says the latest increase is necessary,” explains Mr Dight.
“It reflects higher wholesale energy costs due to oil and gas prices increasing recently and customers are still better off than they would be without the cap.
“The amount of profit a supplier is allowed under the cap hasn’t changed – that remains at 1.9%.
“However, the move to increase the cap will – rightly or wrongly – inevitably undermine confidence in its ability to protect customers, in particular the most vulnerable customers, from price hikes.
“The cap only applies to standard variable tariffs and default tariffs – those suppliers who can offer a range of tariffs to suit the needs of their customers don’t have to worry – although obviously they will want to offer tariffs below the cap, to attract new customers.
“The losers will be the “big six” suppliers, with the most “sticky” customers who have not switched to a better deal – they are the ones the cap will apply to.”
Which UK utilities have gone out of business over the past 12 months?
Multiple energy firms have gone bust since January last year, forcing Ofgem to enact the supplier of last resort process on many occasions.
Among the largest was Spark Energy, based in Selkirk on the Scottish border, which folded over what it called “increasingly tough trading conditions in the energy industry”.
Ofgem confirmed the 290,000 customers of the company, which employed more than 300 staff, have since been absorbed by Ovo Energy.
Separately, Ovo Energy also acquired Spark Energy’s operating company Spark Energy Ltd and has retained the Spark Energy brand.
Also on the list was Coventry-based Economy Energy, which was forced to close after Ofgem banned the utility from adding to its 235,000-strong customer base at the start of 2019 for poor service handling.
The watchdog said it will look for a replacement but customers could be forgiven for feeling a little concerned.
The remainder includes Utilitywise, One Select, Iresa Energy, Gen4U, Usio Energy, Extra Energy, National Gas and Power, and Future Energy.