‘Power To Switch’ – Will It Overcome UK Market Stagnation?

A 4-week campaign to encourage energy supplier switching has been launched in the UK.
Published: Thu 19 Feb 2015

Switching of energy suppliers has been in decline in Great Britain since 2008, reaching a level of about 11% last year (3.3 million customers), according to figures from Energy UK.

Energy market reform

As part of the government’s programme of energy market reform steps have been taken to improve the switching process. To date switching times have been halved, now taking 17 days to switch energy supplier – including a 14-day ‘cooling off’ period and 3-day switching time – down from 5 weeks last year. Further, legislation has been introduced that requires energy companies to make bills clearer and provide information for customers about how to switch.

As part of the market reform also, new suppliers have been encouraged on to the market, and there are now 20 independent suppliers, alongside the ‘Big Six’ companies. Last year, almost half of the switching customers (1.3 million) switched to one of these independents. They are also generally being more highly rated by customers. [Engerati-Small Energy Providers Trounce Big Six In Britain]

‘Power to Switch’

In order to encourage switching the national Department of Energy and Climate Change (DECC) is launching a one-month campaign, ‘Power to Switch’, with the tagline ‘£2.7 billion up for grabs by switching energy supplier’.

The campaign will include national, regional and online advertising, encouraging people to switch and save. It is estimated that by switching the average customer should be able to save around £200 (US$300) on their gas and electricity bills, and many could save more. For example, the consumer body Which?, which runs the switching site Which? Switch, estimates that users who switched supplier in the last quarter of 2014 are currently saving an average £245 (US$375) a year on their bills.

Based on analysis of 2014 energy bills collected from DECC’s Domestic Fuel Inquiry, which collects information on customer numbers by tariff, and comparing with that from switching sites to find cheapest possible deals, the total potential savings are estimated at £2.7 billion (US$4.1 billion).

“When it comes to switching, the power is in people’s hands to get a better deal and save,” said Energy and Climate Change Secretary Ed Davey. “We’ve reformed the market so that there are more suppliers, more competition, and a much faster and simpler process to switch. That means millions of people can switch supplier and save hundreds of pounds today.”

Around a dozen websites are available for consumers to compare energy prices. Ofgem has recently strengthened its Confidence Code for these websites, setting tighter standards on how tariffs are displayed with websites given until the end of March to comply.

Switching potential

In their utility customer switching report for 2012, VaasaETT attribute the decline in switching in Britain – from an average around 20% through much of the 2000s – to the marketing environment and the ability of customers to save, rather than the propensity of the market to switch or the predisposition of the customers.

With about 13.5 million households believed to be able to make savings, most of which will have never switched (almost two-thirds of British customers have never switched), there is significant potential for switching. However, it will require sustained marketing activity beyond the duration of the ‘Power to Switch’ campaign.

It should also not be forgotten that switching is not the only way for consumers to achieve energy savings. Energy efficiency in the home, energy efficient appliances and home energy management all offer potential savings opportunities.

Next-day switching

Going a step further, Ofgem has launched a programme to put in place next-day switching by 2019. The proposal is that there will be a new centralized, registration service operated by the smart meter Data and Communications Company (DCC), which will provide a single, common service for the gas and electricity markets. To achieve this Ofgem has committed to launching a significant code review and to starting the industry workgroups to design the new switching arrangements later this year.

The programme will also necessitate replacement of the IT systems used in the switching process, which were originally developed in the 1990s.

Further reading

Ofgem: Moving to reliable next-day switching