Profits slide at big six energy firms as 1.4m customers switch

Guardian Web |

Britain’s biggest energy firms saw their profits dive by 10% last year as more than 1 million customers left them for smaller challenger companies.

Profits at the so-called big six firms fell from £1bn to £900m in the face of increasingly tough competition, and their market share dropped to a record low of three-quarters.

But figures published by the energy regulator, Ofgem, revealed huge differences in the companies’ profitability.

The market leader, British Gas, maintained a healthy margin of 8% as an ongoing cost-cutting drive offset the loss of hundreds of thousands of customers.

SSE still made a 7% margin, E.ON was down to 5% and ScottishPower’s margin fell to 0.5%. EDF made a profit for the first time since 2009, while Npower narrowed its continuing losses. The merger of SSE and Npower was given the green light this week by competition authorities.

In total, 1.4 million people left the big six between and , according to Ofgem’s annual state of the market report.

Newer entrants have grown their market share to 25% of gas supplies and 24% for electricity, but so far none have managed to break through to the scale of the big six.

Householders now have 73 energy suppliers to choose from, and switching rates are at a record high.

The emergence of a new breed of middleman companies, who switch customers automatically, was putting additional competitive pressure on firms, Ofgem said.

But the report found a significant chunk of people are still not shopping around.

One-third of consumers said they have never switched, and 27% said they had only switched once, in figures almost identical to a year ago.

And while the number of people on poor value default tariffs has continued to fall, 54% are still on such standard variable tariffs.

The government said the fact so many households were still paying over the odds showed why it was introducing a price cap at the end of the year.

“Many customers, including the elderly and those on low incomes, are still paying too much,” said Claire Perry, the energy minister.

But the industry warned the cap, which will apply to 11m households, would be a significant challenge for many suppliers.

Lawrence Slade, the chief executive of Energy UK, said: “It will be important to ensure it does not undermine the positive change within the energy sector and have any unintended consequences for customers.”

There are signs in the report that the upcoming cap could turn back the clock on switching rates.

Ofgem cited evidence that switching for the 5m vulnerable households protected by an existing cap had slowed down between and . More than 90% of those households were found to be paying a tariff either at the level of the cap, or close to it.

Dermot Nolan, the chief executive of Ofgem, said: “We have witnessed many positive developments in energy over the last year, but the market is still not delivering good outcomes for all, especially the vulnerable.”

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