Blog Post

Why is now a good time for smaller Energy Suppliers to get new customers?

Matt Olney • Apr 20, 2020

With many consumers seeking to save the pennies due to the Covid-19 pandemic, challenger energy suppliers can use multiyear low energy prices to their advantage by offering cheaper tariffs than their larger, less flexible rivals and increase their market share.

An opportunity for Challenger Energy Suppliers

The larger suppliers often set their prices as close to the price cap as they can to make as much revenue as they can, however, newer, and smaller brands can often offer consumers cheaper deals.

There are plenty of articles in the media currently encouraging consumers to switch their energy supplier to get the best deals.

Now, is an excellent time for suppliers to snap up some new customers. Many consumers will be seeking cheaper tariffs than what they’re currently on due to them being stuck at home and having more free time to assess their outgoings.

Data released earlier this month highlighted that price remains the most important factor a consumer considers when seeking to switch to a new energy supplier.

Now, with cheaper wholesale energy costs it is an ideal time for an energy supplier to take advantage of this increased demand for cheaper tariffs.

Wholesale Energy prices

Wholesale energy prices have tumbled over the past few months with gas hitting a 10-year low.

The fall in energy prices has resulted in the cheapest energy tariff in the UK falling by a further £32.60.

At the end of February, the average price of the 20 cheapest tariffs was recorded at £831.80, in March they fell to an average of £824.40. So far this month prices have fallen further.

Is the window of opportunity narrowing?

The window of opportunity may be narrowing as market analysis shows tentative signs that a deal made between Russia and Saudi Arabia and its OPEC allies to cut oil production will see a rise in that commodities prices.

The agreement will see global output slashed by 10% and is the largest such deal ever agreed.

However, hopes of a strong revival in oil prices took a hit on Monday with news that the price of US Brent crude tumbled to its lowest level in 20 years as the pandemic sees demand dry up.

The rise in oil prices recorded last week already resulted in some energy suppliers pulling the cheapest deals but if that rise was short-lived then they could make a return.

“At a time when many households are worried about the cost of energy, this reduction in prices may offer a helpful way for people to reduce their monthly outgoings.

‘For households struggling to afford their energy bills, the government has rightly promised that no one will face their supply of energy being cut. Households finding themselves in a difficult financial situation, especially vulnerable customers, should contact their energy provider for additional support,” said Peter Earl, Head of Energy at Compare the Market.

Challenger Suppliers have an advantage

Smaller energy suppliers may not have the financial clout as the biggest players, but they do have some advantages.

In the current climate, the big players are facing financial and operational challenges that smaller suppliers are not. Bigger suppliers, for example, are likely to have a much larger base of vulnerable customers that need support.

Customers with pre-payment meters, for example, require their supplier to send out keys with credit top-ups worth £50 and as a result, the suppliers will have to write off those sums. They’re also more likely to be hit by a massive bill for bad debts later in the year due to not being able to cut off customers with standard meters.

These are issues that challenger companies are facing on a much smaller scale, allowing them to be more flexible with their pricing.