What Does 2019 Hold For The UK Energy Market?

2018 was a difficult year for energy suppliers. Disruption of the market by new, agile entrants saw the big six fighting for survival, not to mention numerous smaller providers failing. Rising wholesale prices saw profits squeezed, and the looming figure of the retail price cap on the horizon did nothing to dispel energy provider’s trepidation.

 
Six weeks into the New Year and we’re starting to see how these dynamics are playing out on the energy industry stage. Let’s take a look at what 2019 has in store for the UK’s energy market, as well as revealing our predictions for the big trends this year.

There are a few big issues scheduled in for 2019 in the energy marketplace, which could affect those in the energy supply business. These include:

Ofgem are pursuing a number of avenues to reform network charging. These are intended to address the distortions which have occurred as a consequence of recent market change. They include the Targeted Charging Review as well as the forward looking review of charges under the Electricity Networks Access project.

Ofgem announced in December its full proposals for the next round of price control measures for gas and electricity networks, Known as RIIO-2, this will be a topic of consultation throughout 2019, although the new price control period doesn’t start until 2021.

With the nature of the UK’s exit from the EU still unclear, it’s very difficult to say how Brexit will impact the energy supply industry. With many EU members already ‘re-nationalising’ their energy policy, it’s likely to be minimal and could even be a positive outcome, as we could plug our energy gap through interconnectors investment.

In 2018, the government passed the Automated and Electric Vehicles Act through parliament, giving it new powers to ensure EV points are readily available at service stations. Local politicians can request installations at larger petrol stations in their areas too, so Britain an expect to see a proliferation of places to plug in their car springing up over 2019.

There are a number of other, less high profile bits and pieces going on in the energy industry this year, but these are the key initiatives we foresee having an impact on the supply business.

It’s hard to see clearly into our crystal ball with so many variables fighting for space. However, taking into account what we know is happening and what we’re seeing in the industry ourselves, we’ve laid it on the line and made a few predictions for the energy industry in 2019 ourselves.

After finally coming into force on January 1st, the fallout from the implementation of the price cap is already plain to see. Already the regulator has raised the level by £117, which pretty much wipes out the savings projected for households by the introduction of the cap.

Ofgem themselves intimated that they expect the price cap to negatively affect switching activity in the UK. Whether as a result of confusion or because they wrongly think they’re protected from overpriced tariffs, the likelihood is that we won’t see the record levels of switching observed during 2018.

Taking the price cap into consideration alongside other competitive pressures, it’s unlikely that we’ve seen the end of independent energy suppliers collapsing. With ten gone for good and many more on the brink, if the remainder of the winter doesn’t seal the fate of a handful of poorly performing suppliers, the start of next winter is likely to.

 
It’s not just the small suppliers who are struggling either. Both SSE and Centrica have issued profit warnings, citing the price cap as an issue. Npower are axing jobs in an attempt to streamline operations, and while it’s unlikely any of the big six will fold, we’re likely to see more job losses and service cuts as 2019 pushes forward.

We’ve already witnessed some degree of tariff convergence, as the big six all priced within £4 of the cap for their standard variable tariffs. Smaller suppliers have increased their prices too, often proportionally more than the larger ones, although they tend not to hit the headlines so readily.

Evidence has already been seen of this type of convergence in relation to the prepayment cap, also known as the ‘safeguard tariff’. This has been in effect since April 2017 and resulted in the difference between the cheapest and most expensive tariffs narrowing significantly. As the same is likely to happen with the wider retail market, our next prediction is even more pertinent.

With the price cap driving tariff rates closer and closer together, there will be less differentiating the suppliers on offer to customers. As such, there is an opportunity for independent energy suppliers to learn how to set up an energy supply company that drives customer loyalty .

 
Traditionally, the energy supply industry has not been good at rewarding loyal customers, preferring instead to focus on new acquisitions. With the ‘race to the bottom’ of the comparison tables less of a priority (or possibility) now, we expect more suppliers to invest in customer engagement and better energy supplier CRM systems to assist with that.

The energy sector has always been somewhat last to the party when it comes to new tech, but they are going to need to catch up fast if they want to keep pace with the many digital first competitors entering the market. Blockchain has the potential to increasingly eliminate the ‘middleman’, for example, connecting consumers directly to renewable energy producers. IoT also holds many opportunities for energy suppliers, as does robotic process automation (RPA).

 
Although many utility providers simply don’t have the budget to entirely replace outdated systems with cutting edge tech, we expect to see some strong movement in 2019. RPA has the ability to cut overheads and streamline processes, freeing up capital for other investments. With a leaning towards tech and a ‘customer first’ strategy inevitable, the uptake of advance analytics and energy supplier CMS systems is likely to take off too.

 
Despite the many hurdles facing independent energy suppliers in the UK market today, we think 2019 also holds a lot of promise for forward thinking companies. Traditional mindsets are being exchanged for modern, agile initiatives, which will lead to a better customer experience across the industry as a whole.

Overall, 2019 is shaping up to be a pretty exciting year all round for the UK’s energy supply industry. Despite Ofgem toughening up the rules for gas and electricity supply licensing , we think there’s never been a better time to set up a new energy company to challenge the big providers.

Dyball Associates are proud to help new supply businesses successfully launch in the UK market.

Through our energy market consultancy services, and the software we've developed, we're supporting new UK electricity and gas suppliers get set up and start supplying.

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