Failing energy suppliers adding to rising household energy bills

According to the data, families paid on average £571 per year for electricity and gas in 1998, in 2018 that figure had doubled to an average of £1,447. A 5% increase per year whilst inflation over the same period remained steady at around 2.8%. It also means the average household is now paying £107 more for energy than a year ago despite the introduction of the energy price cap.

Recent Ofgem data shows that UK electricity prices are the ninth most expensive across the EU and gas prices are below the EU average.

Back in 2013, the government had complained that the ‘Big Six’ energy suppliers had resulted in a lack of competitiveness in the market and limited customer choice. At the time, then Prime Minister David Cameron said that he wanted to ‘turn the big six into the big 60’.

As a result, the market was opened to a plethora of new energy suppliers, with the number soaring from just 7 in 2007 to 61 in 2019. Previously the Big Six had supplied more than 97% of UK households, but in recent years that dominance has slipped to 70%.

Unfortunately, the rapid rise in the number of energy suppliers has resulted in many collapsing with 15 going bust in just the past two years alone, affecting over a million customers.

Cornwall Insight data showed that at the end of 2016, the cheapest tariff was £790 a year. By September last year, after a series of firms had gone bust, this had risen to £864, having reached as high as £930.

The customers of collapsed energy suppliers do not have their supply cut off thanks to Ofgem being able to use Supplier of Last Resort (SoLR) powers that ensure a smooth transition of customers to a new supplier.

SoLR was first introduced back in 2003 to ensure customers affected by a collapsing supplier

are guaranteed continuity of supply. Customers could still end up out of pocket if the collapsed supplier owed them money. The claiming of outstanding credit balances is often far from straight forward and can be both time consuming and stressful.

Read more about SoLR here

With every supplier that goes under the cost of administrating the process of winding it down is passed onto the customers.

Ofgem has taken action to stem the tide of failing energy suppliers by toughening its regulations on market entry.

All the new licensing requirements are aimed at ensuring a company is fir and proper to operate in the UK energy market. The key areas tested include:

·Finances – A business will have to demonstrate that they are in a healthy financial state. This will mean showing that they have the funding to run the business for a year.

·Compliance – New entrants to the UK energy supply market must show that they understand regulations and obligations and how they will meet them.

·Fitness of leadership – Directors and shareholders must prove that they are fit and proper to hold a license. This involves them undergoing background checks. Those who have run or been part of a failed business previously will be classed as unsuitable applicants.

·Customer Service – Applicants must demonstrate how they will provide a good level of customer service.

Many new entrants to the market go in with very low prices to attract customers and in turn survive long enough to the point where they can start to raise prices. Often, this is when the company gets into trouble. Customers will jump ship to cheaper tariffs and if the company has not invested enough in providing a good customer service, they will seek better service elsewhere.

Ed Reed, from Cornwall Insight, said: “Many suppliers could not understand how some new entrants could offer such low-cost tariffs. They helped them grow customer numbers, but history has since shown this approach often led to poor customer service and consumer detriment.”

The tougher regulations mean that suppliers must now apply for the licence themselves. This should ensure firms are on a more solid footing, meaning less chaos for customers.

Setting up an energy supply business is far from easy, but with the right guidance and commitment, a new business can succeed.

With the help of Dyball Associates, you can take your existing, or new energy supply business, through the gas set-up and the ELEXON and MRASCo qualification processes. The Dyball Associates consultancy team will adapt our business processes, policies, and qualification documentation to tailor them to your organisation.

We will guide you through the qualification process and our highly qualified consultancy team will deal with any questions and needs throughout the process.

For more info on how we can help you contact us

As well as taking the expert advice from Dyball Associates consultants an energy supplier also needs to ensure that they can compete with their rivals in terms of customer service.

The most successful new entrants to the energy supply market have all concentrated on this area and regularly challenge the top of the customer satisfaction leader boards. Those companies that fail to provide excellent customer service such as providing regular communication, quick call response times and extra benefits are the ones that typically struggle to survive.

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For more information on how to start and manage an energy company, get in touch with Dyball Associates today.

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