Britain’s Bix Six Energy Suppliers Stem Customer Exodus as Prices Rebound

Britain’s ‘Bix Six’ energy suppliers – British Gas, SSE, RWE Npower, EDF Energy, Eon and Scottish Power – have been given the opportunity to win back ground lost to smaller rivals and slow down the number of lost customers through a rebound in wholesale gas and power prices this year, helping to recover more than a billion pounds in lost revenue last year.

Falling energy prices last year hit the profit margins of the ‘Big Six’ hard and enticed customers to smaller, independent suppliers that could offer cheaper tariffs and better customer service. Smaller energy companies, such as First Utility, Ovo Energy or Utility Warehouse were able to offer cheaper rates as they buy most of their energy needs in the short term market, therefore enabling them to take advantage of the 20-30 percent tumble in prices in 2015. Larger suppliers purchase most of their requirements in the longer-term market, typically hedging a few years ahead, which meant they were unable to take advantage of last year’s price falls.

However, due to a rebound in prices this year, smaller providers are having to increase their tariffs to cover the increase in wholesale prices, thus giving an opportunity to the ‘Big Six’ to reclaim customers, or at least slow down the flow of customers leaving.

Market prices for this winter, which runs from October through to March and is typically the highest demand period of the year, have risen by almost 30 percent since April due to a recovery in the oil market and concerns over gas storage availability for the coming winter period.

This has seen the rate of customer switching from the traditional ‘Bix Six’ supplier, in favour of a smaller, cheaper supplier, slow down, with industry data showing it fell to its lowest level since April 2015. RWE Npower gained an extra 200,000 new customers in July, returning its customer base to levels not seen since the end of last year, while number 2 supplier SSE reduced customer losses to 50,000 between March and June, from 90,000 over the same period a year ago.

In contrast, according to uswitch, a price comparison site, smaller suppliers such as Ovo Energy and Co-Operative Energy have lifted their tariffs by 3.6 percent and £103 respectively as a result of higher wholesale prices.

According to Ofgem, the UK’s energy watchdog, smaller players, such as the ones mentioned above, had increased their electricity market share to 13 percent by March this year, while increasing their share of the gas market to 14 percent, both up from the 10 percent recorded in 2015. Apart from the price of gas or electricity, frustration with customer service levels at ‘Big Six’ firms has also seen consumers switch their energy supplier.

In the face of increasing market prices however, smaller rivals are moving to strengthen their balance sheets. Good Energy, which specialises in renewable energy, raised £3.1 million in a share offer in June, while some of the biggest independent providers, such as First Utility and Utility Warehouse have hired established trading firms, such as Shell and Npower to carry out their hedging and trading on their behalf.

Many other independent suppliers declined to comment on their strategies due to commercial sensitivity, however, should wholesale energy prices continue to rise, smaller suppliers with deteriorating balance sheets could be encouraged to take more drastic action in the future.

Source: Reuters

« Back to News

Related News