While there have been some impressive escalations in switching (in 2013 for instance), not enough customers are shopping around for the best energy deals. This is according to the latest DECC figures [see graph below].
A new analysis, carried out by consumer group Which?, reveals that the proportion of customers on standard electricity tariffs has remained unchanged at about 75%, or 21 million households, since the start of 2014. The proportion on standard gas tariffs also remains broadly unchanged at about 73%, or 16 million households.
Given the power to switch
Figures for the first quarter of 2015 are not good either despite DECC launching a four week ‘Power to Switch’ campaign last February.
The DECC is a big supporter of switching, announcing on its website that consumers can save around £200-plus per annum on their energy bills. The site also highlights the fact that 13.5 million households across the UK are missing out on their share of £2.7 billion by staying with their current energy company. [The savings is based on analysis of 2014 energy bills collected from DECC’s Domestic Fuel Inquiry].
In an attempt to give consumers the confidence to switch, Ofgem strengthened the Confidence Code for price comparison sites, setting tighter standards on how tariffs are displayed on websites.
The UK Government has also halved switching times-instead of 5 weeks, it now takes 17 days to switch energy suppliers. Suppliers could face investigation and fines if they cannot meet these timescales.New independent suppliers are also encouraged to join the market and the Government supports Ofgem reforms that force energy suppliers to provide clearer bills and educate their customers about the switching process.
With 26 energy companies on the market and some fixed deals £100 cheaper than they were a year ago, there’s never been a better time to find a great deal, the DECC has said.
A Telegraph article [January 2016] echoes this sentiment by pointing out that switching savings are currently at record highs. The article highlights the fact that as temperatures drop, competition will escalate over the next few months and better tariffs are likely to emerge.
Oil and gas prices have come down to their lowest quarterly average since 2010. However, household prices have only dropped a small amount over the last few years with the average house paying £1,098 a year for energy. Wholesale gas and electricity prices dropped dramatically in 2014 and in 2015 this trend has continued. Wholesale gas prices are down 53% since the start of 2014 and wholesale electricity prices are 34% less.While the Big Six may be reluctant to pass price cuts on to their customers, consumers have the opportunity to save by switching energy suppliers.
Even with all this government support and the potential to save, not enough consumers are switching.
What stands in the way of switching?
The recent price cuts could be to blame. Even though the cuts are small, it may be giving consumers the impression that they have a good deal. But, this may not be the case at all.
Another reason could be that the length of time to switch is still too long. Consumers can change their bank in seven days, their mobile phone in just a couple, but have to wait significantly longer to switch their energy supplier. However, Ofgem is looking to change that. They are working with suppliers and DECC to accelerate the switching process. By 2018, switching may only take 24 hours.
Exit fees could be another obstacle to switching. Many consumers find themselves locked into a fixed-rate tariff with a hefty exit fee. To circumnavigate this, consumers are encouraged to negotiate a better deal with the supplier.
Often, switching can be more costly-hidden costs such as commission fees from comparison sites can actually lead to a major increase in utility bill.
Sometimes, it’s the matter of ‘better the devil you know than the devil you don't’. Added to hidden costs, consumers are concerned that they land up with worse customer service.
Hanging on to customers
Something else that could be preventing a rise in switch levels is exceptional service. Providers could be doing more to encourage customers to stay with them rather than switch.
Due to the growing competitiveness in the sector, utilities are being encouraged to ‘up their game’ and do more to help their customers manage their energy consumption better. We wrote a series of articles recently about how E.ON UK has successfully changed its strategy to become more customer-centric and is already reaping the rewards. [E.ON The Next Steps in Customer Engagement: Implementation.]
For the utility, switching means loss of revenue and an increase in marketing costs to attract new customers. It therefore makes complete sense that utilities are doing everything they can to hang onto their existing customers. [Reducing Churn by Engaging More with the Customer.] [Customers Hold The Key To Transforming The European Utility Business Model.]