Analysts Say Switching Supplier Could Return in July

Thursday, 16 February 2023

Falling wholesale prices could see the return of competition to the energy market from July, enabling customers to switch to cheaper deals, according to industry analyst Cornwall Insight.

In the years leading up to 2021, before the current energy crisis, around six million people a year switched suppliers, usually moving to fixed-rate tariffs lasting 12 or 24 months.?

These were priced below standard variable rate tariffs (SVTs), the price of which was capped from 2019 onwards by a price cap set by the market regulator, Ofgem.

However, as wholesale prices soared in the latter half of 2021 and into 2022, the availability of cheap fixes dried up, and SVTs became the least-expensive option. With all suppliers pricing their SVTs at or close to the level of the Ofgem cap, the incentive to switch disappeared.

Since then, as the cap increased in response to soaring wholesale prices, the government introduced the Energy Price Guarantee (EPG), which is lower than the Ofgem cap, and which means prices for each unit of energy used are held at a given level for all domestic customers.?

Under the EPG, the average annual bill for a typical household stands at ￡2,500. If the cap were still in place, this figure would be ￡4,279.

However, the EPG average bill will rise to ￡3,000 a year from April as the government trims back support. This will still be below the predicted price cap at that point, but in July, the cap is expected to dip to around ￡2,360 – and energy bills will then be required to reflect the level of the cap, not the EPG.

Cornwall Insight commented: “There is a good chance that suppliers will be able to offer fixed tariffs that compete with the capped government prices, reviving the benefits of switching suppliers.

“In examining the potential for switching, we note that if the wholesale market volatility, as experienced in 2022, returns, it could become uneconomic or impractical for suppliers to offer the kind of competitive tariffs in question.?

“However, the current market conditions suggest there may be room for households to have a wider engagement in the energy market than they have in recent times.”

Price differentials between suppliers may emerge because firms buy bulk energy supplies in advance, at different times and prices. Some may also choose to undercut rivals in order to secure market share.

Via: Forbes.com