Switching is one of the many factors we monitor carefully in the domestic energy markets as it gives a strong indication of market behaviour. In recent months, the popularity of independent suppliers appears to have levelled off, with 25% of electricity switchers moving to independents in October compared to 33% at the same time last year (Energy UK).
October 2015 saw switching levels rise to a two-year high, with more than 300,000 people moving energy supplier in one month. Many consumers' fixed energy deals came to an end during the month, at the same time as an upswing in supplier advertising in advance of colder weather and higher bills.
But the step away from the independent suppliers is an interesting one. Following price rises from the Big Six in the winter of 2013-14, switching to independents rose to more than 40% of all electricity transfers. Competitive deals offered by smaller suppliers at this time undercut tariffs from the Big Six by more than £70, while specialist offers targeted rental properties, environmental concerns, smart prepayment and low consuming customers.
So the Big Six responded. RWE npower, Scottish Power, EDF Energy and more recently SSE have engaged in the competition for online one-year fixed deals. Strong brand image for these major suppliers has continued to pull switchers away from (sometimes cheaper) independent deals, coupled with poor customer service results for a handful of smaller suppliers. In addition, we believe that it is essential to have a competitive fixed deal ready for customers as their existing tariffs expire. Some suppliers have learned this the hard way as churn rates from the most competitive tariffs are, we believe, in excess of market average switching levels.
More unconventional routes to market such as collective switching have also been dominated by the Big Six, with E.ON UK using this method as its primary access to customers. The supplier has won at least eight schemes this year alone, the majority of which have not followed the traditional pattern of a collective switch auction. Instead, schemes are offered by price comparison websites and promoted as their cheapest deal in the market. Limited to a set number of customers, the deal is then held open after the winner has been announced - essentially providing a deal outside the four-tariff cap imposed by the Retail Market Review (albeit for a limited period).
Moving into winter we expect to see an upswing in these schemes, with a wider variety of winners as the likes of British Gas, Good Energy and Green Star Energy begin to auction tariffs more competitively.
But it's not all over for independent suppliers yet. Wholesale prices remain low and the independent suppliers continue to record some of the highest net gains each quarter of our market share survey. New entrants into the market are more frequent than ever and interest in energy supply from local councils has been reported widely.
So as we await the next set of switching statistics for November, we note the recent drop in fixed tariffs below £800/year (based on Ofgem's medium typical domestic consumption values), led once again by independent suppliers. Whether this is reflected in the proportion of switchers moving to independent suppliers over the coming months will be something we keep a close eye on.