The collective profits of the UK’s six largest energy suppliers have fallen for the first time in four years due to rising competition in the market, according to a market-wide report from the energy regulator.
Ofgem’s analysis of the energy market has found that overall profits for the Big Six dropped by 10pc to £900m last year as they lose their grip on the market to a new generation of energy start-ups.
The companies face further pain this winter as the Government’s controversial cap on standard energy prices descends on around 11 million accounts, despite signs that competition in the market is improving.
Over 73 energy companies are competing to supply gas and power to Britain’s homes, of which a quarter have opted for a new entrant to the market.
Gillian Guy, the head of Citizens Advice, said the rising number of people opting for new energy suppliers “underlines why it’s so important that Ofgem tightens up its licensing rules”.
“We know that some suppliers entering the market aren’t prepared to provide adequate customer service, or aren’t financially robust enough to survive.
“Poor customer service often hits vulnerable customers the hardest. It needs to stop poorly prepared companies from entering the market, and take badly performing suppliers out of the market quicker,” she said.
The record high proportion of energy challenger brands, and record switching rates, has done little to settle political fears that customers are being ‘ripped off’ by the larger suppliers.
Around half of all homes still use standard variable tariffs to buy their energy which are typically offered as a default option by larger suppliers, and are more expensive than fixed rate deals.
Dermot Nolan, chief executive at Ofgem, said there have been “many positive developments in energy over the last year, but the market is still not delivering good outcomes for all, especially the vulnerable”.
The report found that a lack of engagement and fuel poverty is disproportionately prevalent in households which are socially vulnerable and in homes which are poorly insulated.
Both areas of the market have been sidelined by the regulator and Government officials in recent years.
The Government’s flagship energy efficiency programme to upgrade drafty homes through the Green Deal scheme was shut in the summer of 2015.
Earlier this year Mr Nolan issued a public apology for failing vulnerable customers by waiting to introduce a safeguard tariff cap for those using a standard variable tariff.
He confirmed before a committee of MPs that he would not receive a bonus for the year.
Claire Perry, the energy and clean growth minister said: “We’re determined to protect vulnerable consumers when it comes to their energy costs.”
The cap covering 5 million homes has been in place since April, but Ofgem plans to broaden the standard tariff cap across the whole market once legislation is complete by the end of the year.