This spring the domestic energy market reached a key threshold. Collectively, independent suppliers now hold an energy (that is, electricity plus gas) market share of more than 10%, according to our latest survey.
This move places the aggregate share of the independents above that of two Major Suppliers on a national basis, although the highest share achieved by an individual small supplier remains below 5%. At the regional level, independents collectively hold a share of more than 10% in nine of the 14 regions, and record the third highest energy share in three regions.
While these key markers indicate the popularity of independent suppliers, the drive in growth has been sustained over the last 18 months. Collective and individual shares have risen on the back of competitive tariff offers and innovative products and, despite some concerns over service and sales techniques for a minority, this has not yet resulted in a net loss for any individual independent.
For the Major Suppliers, the last three months have resulted in a mixture of gains and losses. Most saw customers leave in their legacy regions, where shares have fallen over the last four years. However, it is often the case that suppliers lose single fuel electricity and gas customers but add dual fuel—in essence converting their existing customers to a dual fuel contract.
The push for dual fuel has been one characteristic in the engagement of customers in the market. Online and collective switching often engages customers to assess both fuels simultaneously, and these methods of comparison can encourage consumers to switch away from their fixed deals when coming to the end of the tariff period.
This quarter saw the end to a number of fixed deals which, when launched in Autumn 2013, were competitive rates attracting a significant number of acquisitions. At the end of the tariff term, customers that continued to be engaged in the market sought a better deal elsewhere, leaving the original suppliers and resulting in net losses for the companies.
However, not all customers make the active choice to leave. Those that don't are moved onto the supplier's standard variable tariff which, in recent years, has become more expensive than fixed tariff offers. As the CMA highlighted, there is an inter-relationship between suppliers' pricing of standard variable and fixed tariffs, in that the cheap fixed deal often acts as an attractive proposition offer under the expectation that a certain proportion of customers will revert to the standard variable at the end of the product's fixed term. Suppliers have argued that it is only because this happens that they can offer the cheapest of their fixed tariffs.
But independents should perhaps be wary of this pattern. Competitive online deals that attract high levels of interest from dynamic customers will not retain those acquisitions for long when consumers are moved to the standard variable option, due to the nature of the customers they had attracted. Churn rates on a competitive one year fixed deal have been recorded at 30% to as high as 50% when no competitive renewal is available, an especially significant factor for suppliers looking to grow shares by competing on prices. It therefore appears that suppliers will need to continue to offer competitive rates to attract and more importantly, to retain customers.