Smaller energy players overtake Big Six
Monday, 21 September 2009 09:45
The Big Six energy suppliers have long dominated the UK gas and electricity market, offering the best prices, albeit at a higher level than most would like.
But competition is starting to heat up and two smaller rivals have now overtaken the biggest operators in the market on price.
Sarah Routledge checks what the smaller players are offering UK customers.
Independent energy suppliers First Utility and OVO have thrown down the gauntlet to the Big Six (British Gas, E.ON, EDF, Scottish Power, NPower and Scottish and Southern Energy) with cheaper online tariffs.
Previously, the smaller providers have traded on their customer service or green credentials to attract new custom, but price has always been the sticking point.
Gareth Kloet, utilities expert for Confused.com, says: "Price is currently the single most important feature for customers seeking a better deal from their energy provider.
"Since the start of the year, whilst all of the energy companies have started to reduce prices for their existing customers, the online price war is much hotter and we have seen lots of new online tariffs being launched week in week out from the Big Six energy suppliers.
"The arrival of competitive tariffs from First Utility and OVO are similarly great news, but only for those customers that shop around and opt to pay by direct debit and or an online tariff."
First Utility is offering a dual fuel iSave deal which promises to undercut every other UK energy tariff.
On a medium user basis, the average annual bill is £964, compared to £1,127 at British Gas, First Utility says.
Mark Daeche, chief executive of first:utility, says: "Our goal is to provide consumers with a real alternative to the 'Big Six' energy players.
"As a growing but nimble independent player in the energy market, we're able to react quickly to the fluctuating changes of the wholesale energy market and pass on the benefits to those customers out there who are looking for the most cost-effective energy deal for their homes."
Customers are encouraged to submit monthly readings on this online-only tariff, to make sure they are paying for what they use, rather than a potentially inaccurate estimation.
First:Utility's plan is available in 12 out of 14 energy regions. In the remaining two regions, its smart meter online plan is available and the price is coming down on this, too.
OVO Energy has also launched a cheap tariff, offering a fixed-price plan, which means that customers will continue to benefit even if prices go up - although there is an exit penalty attached.
OVO, launched in 2009 by former Innocent Drinks financial controller Kris Black and Stephen Fitzpatrick, vice president in industrials and consumer goods at JP Morgan, aims for simplification in the energy market.
OVO offers the fixed-price dual-fuel new energy plan, with 15 per cent renewable energy, and the more expensive green energy plan, with 100 per cent renewable energy.
"I think a lot of the smaller providers offer a much better choice of products," says Mr Fitzpatrick.
"We're trying to make a big improvement on customer service - we thought if we could improve that we could appeal to everyone."
On setting up the company, the founders made a list of everything they did not like about energy companies and resolved to do things differently.
"On a customer's first enquiry we try to sort the problem out, by hiring people with lots of experience in the industry. So instead of being passed around from department to department, we aim to resolve it in one call."
There are no dangers to using a smaller energy company, Mr Fitzpatrick adds, as they are regulated by Ofgem just the same as the bigger players.
"No matter what happens to us, the customer will never see the lights go out," he says, as all energy companies must have systems in place to protect the consumer in the event of bankruptcy.
Will Marples, energy expert at uSwitch.com, says: "It's good news for those consumers who have been looking for a viable alternative to the big six, but who are concerned about paying more for their energy as a result.
"Although small and relatively new, both OVO and First:Utility are setting out to differentiate themselves. First:Utility was the first supplier to offer all customers the chance to get a smart meter installed, putting householders in greater control of their energy usage.
"And now they are positioning themselves as the UK's cheapest provider too. This is exactly the type of challenge the market needs and consumers will now be watching with interest to see how other suppliers respond."
Smaller energy companies also pride themselves on their ethical and customer service credentials.
"I'm sure that both First Utility and OVO will tell you that customer service is a priority for them both, but with the only true gauge being the reported energywatch complaints (now consumer focus) neither new supplier has reached the point yet where they need to report their complaint statistics so it's hard to say," says Mr Kloet.
"From personal experience (I've worked in the industry for 15 years), smaller companies are fresh, exciting and take a real pride in their customer service and retention. On the flip side, being new, they can easily suffer from the delights of growing quickly and at times of large customer growth, their customer service can suffer a little."
Ebico, a not-for-profit supplier, offers a fair pricing structure that does not discriminate against poorer households who use prepayment meters, the company claims.
Most gas and electricity suppliers have been criticised for only offering their cheapest tariffs to those who can pay by direct debit and have access to the internet - excluding many of the poorest households from the best rates.
But the ethos of Ebico is to spread the cost between all customers, helping those least able to pay with better deals and offering a fairer, more transparent pricing structure.
As with most of the smaller suppliers, Ebico actually receives its gas and electricity from Scottish and Southern Energy.
"I think because we are small, we are able to focus on what makes us unique - our not for profit status, our social agenda," says Phil Levermore, managing director.
"We did a survey of our customers on why they chose us. Price was first, but very close behind that was customer service and close behind that was the company's ethics."
Meanwhile, Ecotricity, another small supplier of electricity, also competes on something other than price: its green credentials.
Ecotricity offers two tariffs - one that provides 30 per cent green power, with the rest made up of traditional, 'brown' electricity, and a 100 per cent green tariff.
The first plan, New Energy, promises to match the Big Six on price, while the 100 per cent green, New Energy Plus, tariff is a little more expensive.
All the electricity you receive on the pricier tariff is from renewable sources, and the company is also committed to building more green power.
"With winter on the way households should be looking to cut the cost of their energy," says Mr Marples.
"If they want to benefit from the cheapest prices they must move to an online energy plan - it's a simple step to take, just move to dual fuel, pay by direct debit and sign up to an online plan. You don't even have to stick with a traditional supplier any more if you don't want to."
Mr Kloet adds: "In my view, competition is definitely improving but if you want to bag a bargain, you've got to go and get it. We'd always advise customers to use a Consumer Focus accredited price comparison site like Confused.com, opt from an online tariff and pay by direct debit in order to get the maximum savings."
Smaller energy companies are truly giving the Big Six a run for the money, and the competition will hopefully drive some much-needed changes in the industry in customer service and cost.
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