Newcomers try to shake up the energy market

First published in Business by

WHEN the Citizens Advice Bureau reported a surge in the number of people seeking help and advice about soaring energy bills, it posed a challenge to the big six fuel suppliers as winter’s chill looms.

The CAB confirmed a 46 per cent rise against this time last year, while price comparison website uSwitch.com estimates that 5.2 million households – out of a total of about 27 million – are living in fuel poverty, against four million only 18 months ago.

Even among consumers able to pay the bills, dismay with energy prices runs deep.

uSwitch figures show that energy prices rocketed by £381, or 42 per cent last year, and have fallen this year only £54 – four per cent.

Since January last year, the average household energy bill has climbed from £912 to £1,239 – a 36 per cent rise. Many households only absorbed the shock by making big savings on mortgage repayments.

But a move which could set energy prices tumbling has come from a minnow among suppliers. Ovo Energy, based on a farm estate of the Royal Agricultural College, near Cirencester, Gloucester, began supplying customers on September 1. Co-founder Stephen Fitzpatrick said consumers signing up to one of its tariffs will save an average £225 per year, an important sum in households hit by recession.

Ovo’s dual-fuel standard tariff – the New Energy Plan – means an average customer will pay £921 a year, against the average standard tariff of £1,141. This figure applies to dual-fuel customers – taking gas and electricity from the same firm – who pay by direct debit.

Mark Todd, director at energyhelpline.com, said this was great news for consumers.

“Energy prices are on the way down. The UK market is being turned on its head by two new upstarts,” he said.

“Ovo Energy is a small supplier, only launched this year.

The second cheapest is another small UK supplier, First: Utility.

“These two are taking advantage of extremely low wholesale prices to undercut the big six. There is a growing trend to switch to these new suppliers.” Mr Todd said one million customers could switch to Ovo and First: Utility in the next year.

Phil Levermore, managing director and founder of another small energy supplier, Ebico, also welcomed Ovo’s move. “I think many people are very upset that the Big Six aren’t doing anything to reduce prices. At last people realise there are alternative suppliers, if they can be bothered to track them down,” he said.

Ebico, which has gathered 55,000 customers since launching in 1999, makes no standing charge – and charges the same for power regardless of payment method. It is particularly popular with housing associations and social landlords, who might have tenants otherwise paying much higher prices on prepayment rates.

Because there is no standing charge, Ebico can also offer big savings to low energy users.

Ebico, self-styled “the UK’s only not-for-profit energy supplier”, leaves bigger rivals trailing in a survey of customer satisfaction with utilities in the autumn edition Which? Money magazine.

But perhaps it needed the Ovo move to remind customers that they ignore smaller suppliers at their peril.

Tom Ryan, energy expert at uSwitch.com, said newcomers have set out to differentiate themselves from the competition.

“First: Utility was the first supplier to offer all customers the chance to get a smart meter installed, putting householders in greater control of energy usage,” he said.

“Ovo’s energy is 15 per cent renewable, and they are positioning themselves as the UK’s cheapest provider too.

This is exactly the type of shake-up the market needs.”

The big question now is whether the big six will retaliate – and, indeed, whether they want to.

“New suppliers are taking advantage of very cheap electricity and gas prices, roughly half the level of a year ago,”

said Mr Todd. “In contrast, big suppliers who signed contracts two or three years in advance of delivery to guarantee supplies could be working through very expensive pipelines of gas for months.”

The nature of the energy market means that consumers who try the cheapest supplier are not taking any great commercial risk – at worst, if companies fail, they would lose a month or two of direct debit payments.

“Regardless of who the supplier is, everybody still gets supplies through Transco or National Grid, and there is no danger of supply being cut off,” Mr Ryan said. “Although savings may vary according to the amount of energy consumed, it’s hard to resist a supplier mixing quality service with competitive tariffs.”

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