Navigant Research Blog

Consumer Choice in the U.K. Energy Market, Part 2

Roberto Rodriguez Labastida — June 24, 2016

TabletIn my previous post, I discussed my experience changing energy providers in the United Kingdom and the surge in market share of new players (known as independent providers). This time, I’ll talk about some of the propositions the new players are offering to attract customers.

When I did my research to choose my new energy provider, I was surprised by the number of companies that are now in the market. Back in 2012, the first time I switched providers, there were 14 companies available according to Ofgem, but I can only remember the Big Six and a couple of premium green providers. As of December 2015, Ofgem reports 32 energy providers.

Differentiation through Pricing

Providers are trying to differentiate themselves by using different selling points. The most obvious area to compete in is pricing, and as expected, there are several undifferentiated providers focusing on price alone. Their effect on the average retail price in the United Kingdom is apparent, but some other companies are bringing new ideas to the table.

From variable prices to 3-year fixed prices to different levels of greenness to buy local options like Bristol Energy (a company owned by the city council), companies are trying to stand out from the crowd. Tempus Energy offers a so-called sunshine tariff, which matches prices with peak solar generation for customers in areas with high solar penetration. Others offer smart energy hubs and management tools as a hook for the service. I couldn’t find any that would manage your house for you to reduce consumption, but Tempus Energy does offer some flexible contracts for commercial customers that include time-of-use rates in their tariff structure as well as demand-side management. Most of the new players don’t have generation assets, but others—like Octopus Energy—started as renewable project developers and then moved into retailing.

Better Options Needed to Fit Consumer Needs

It took some time for Ofgem to simplify the switching process enough to make it hassle-free, and a faux pas from the Big Six’s price strategy helped encourage people to take the plunge and make the switch. But now that the process is in place, I can see energy shopping becoming a yearly ritual. It is up to energy providers to develop options that better fit consumers’ needs and tastes.

During my latest switch, I went for a contract of 100% renewables generated by the provider’s solar and biogas projects, which beat most of the competition in price. I also chose a variable rate without any exit fees. For the time being, I don’t see a price spike coming unless the United Kingdom gets a long, cold winter in 2016. But I’ll be happy to switch if something better comes to the market.

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