Utility Week

12 | 28TH SEPTEMBER - 4TH OCTOBER 2018 | UTILITY WEEK Policy & Regulation What do the analysts say? "The energy market is in many ways no different to any other market – to thrive, companies must develop a compelling customer proposi- tion, at a competitive price, and deliver flawlessly on their promise at a cost that leaves them with a sustainable profit." Rob Doepel, energy leader for UK and Ireland, EY "Smaller suppliers have made significant inroads into the market but trying to compete with the, soon to be, "big five" on their home ground is unlikely to be a successful long-term strategy." Ted Hopcro, energy and utilities expert, PA Consulting "The price cap will present significant challenges for the larger suppliers in terms of the need to cut costs. But, for smaller suppliers, it does pre- sent an opportunity to attract customers by utilising their lower cost to serve and targeting specific market segments." Simon Virley, partner and head of energy and natural resources, KPMG "It appears that the business model hasn't changed – sup- pliers enter the market with a very cheap tariff which is potentially loss-making to draw customers in and hope they can stay long enough to make enough money." Ryan Thomson, partner, Baringa "Suppliers who aren't hedged or have poor forecasting capability and are selling at a loss are placing them- selves at risk of failure if they don't have deep pockets to get through the winter." Ian Barker, managing partner, BFY Consulting says Thomson. EY's energy leader for UK and Ireland, Rob Doepel, agrees the price cap will have a negative effect on those at the smaller end of the market. "There was no doubt a moment in time when the wind was with new, smaller energy suppliers, with government and regulators actively trying to attract new entrants and waiving some of the more onerous and expensive energy effi- ciency commitments. "With the price cap now being imple- mented, the spread between high and low tariffs has contracted and any supplier oper- ating a "trap and trip" business model – of attracting on a lower tariff and letting their customers then trip on to a more expensive SVT tariff – will no doubt hit cooler air." The road ahead looks bumpy, and like many others Thomson and Virley feel con- solidation is inevitable aer the "very rapid growth" of recent years. Doepel suggests that companies entering and leaving is a key indicator of a function- ing market, so "we shouldn't fear company failures, nor consolidation". "The energy market is in many ways no different to any other market – to thrive, companies must develop a compelling customer proposition, at a competitive price, and deliver flawlessly on their promise at a cost that leaves them with a sustainable profit." However, he warns, smaller suppliers growing market share by offering below-total cost-to-serve tariffs is a "recipe for creating a customer base with expectations that can only be disappointed". Strategy, then, is key, and small suppli- ers would do well to heed the old marketing adage to "get big, get niche or get out". Ted Hopcro, energy and utilities expert at PA Consulting, says: "Smaller suppli- ers have made significant inroads into the market but trying to compete with the, soon to be, "big five" on their home ground is unlikely to be a successful long-term strat- egy. The lack of a natural hedge and absence of large-scale purchasing power will remain barriers for even the nimblest organisation. "Targeting prepayment customers with smart meters has been a fruitful market for some. Others are now embracing the oppor- tunities offered by new distributed energy. Companies like Ovo are offering a holis- tic energy supply with smart chargers for electric vehicles and home energy storage. Octopus has started an initiative to offer half-hourly tariffs ahead of the introduction of half-hourly settlement. These innovative approaches attract customers and increase the likelihood of retaining them." Aer a long wait, smaller suppliers have finally broken through and seized a 22 per cent share of the energy market. However, warns Hopcro, they will need to continue to innovate to meet the challenges of declining profits during the hot summer and to prepare for the emergence of a new major player. continued from previous page Top five cheapest energy deals August 2018 1. £853 Eversmart Energy, Welcome Home - paperless. Fixed tariff with no exit fees. £377 saving from Npower, £308 saving from British Gas 2. £859 Outfox the Market, Zapp! July Tariff Medium – paperless. Variable tariff with no exit fees. £371 saving from Npower, £302 saving from British Gas. 3. £862 Enstroga Dual One – paperless. Fixed tariff with £25 exit fee per fuel. £368 saving from Npower, £299 saving from British Gas. 4. £864 Uslo Energy Supply, Home Aer 7 Green 5.1 –paperless. Variable tariff with no exit fees. £366 saving from Npower. £297 saving from British Gas. 5. £865 Uslo Energy Supply, Smart Green 5.1 – paperless. Variable tariff with no exit fees, £365 saving from Npower, £296 saving from British Gas. Prices are from Energylinx based on a dual fuel tariff available in all regions in England, Scotland and Wales for an average user (using Ofgem averages of 3,100kWh of electricity and 12,000kWh of gas per year), paying by monthly direct debit with paperless bills. Prices are averages across regions, are rounded to the nearest whole pound and are correct on 1 August 2018. Source: Which?

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