We take a look at the changes leading to challenger energy suppliers rising up

The Big Six have long been known as the firms that take up the lion’s share of energy customers in the UK and have traditionally included the same six companies.

However, in recent years, an influx of small suppliers have saturated the market, looking to give consumers the best value tariffs and the most efficient customer service.

This has led to challenger suppliers stealing customers away from the Big Six – and even taking their spot in the table. 

In a time when many face financial uncertainty, knowing they are on the best deal and with the best provider for their household bills has never been more important, a key reason as to why consumers are willing to switch supplier to cut costs.

The traditional Big Six has changed dramatically recently as smaller firms become popular 

Is that why challenger suppliers have now seen such growth? What has changed in recent times that meant consumers are now more confident in switching to smaller brands?

This is Money, with the help of industry experts, takes a look at which firms the Big Six now includes, how this has changed over the years and what we can expect to happen in the next ten years.

Who are the Big Six now?

Ofgem, the energy watchdog, defines the Big Six to be the ones that supply the most customers and puts providers into categories.

It says ‘large legacy’ suppliers includes those that have held a market share of at least 5 per cent in either fuel since privatisation of the electricity and gas sectors.

‘Other large’ suppliers includes those with a market share of at least 5 per cent in either fuel, having increased market share from below 5 per cent at the time of privatisation.

‘Medium’ includes suppliers with a market share exceeding 1 per cent, but remaining below 5 per cent in both fuels whilst ‘small’ includes suppliers with a market share below 1 per cent in both fuels.

As such it defines the Big Six as British Gas, Eon, EDF, Ovo Energy, Npower and Scottish Power.

These are traditionally the firms that have been known as the top companies, with Ovo replacing SSE after it bought the retail arm of the company in January 2020. 

Firm Share
British Gas 22.00%
Ovo Energy/SSE 13.30%
E.ON UK 10.90%
EDF Energy 9.30%
Scottish Power 8.90%
npower 5.30%
Source: Cornwall Insight 

It had previously taken on Spark Energy, making it the country’s second largest domestic energy supply company. 

These were one of two recent major acquisition in the energy industry that has altered the shape of the Big Six.

The other is Eon acquiring Npower in January 2019 after a failed merger with SSE.  

Some industry experts therefore consider that Npower and SSE are no longer individual firms considered in the Big Six.

As such, in terms of number of customers, British Gas, Ovo (inclusive of SSE), EDF, Eon (inclusive of Npower), Scottish Power and Bulb Energy would make up the Big Six.

However, Npower customers are still under that name as, when the merger happened in early 2019, there was a plan to absorb Npower’s business and its former customers over to Eon but this period is still ongoing.  

Firm Market share
Octopus Energy 6.20%
Bulb 5.60%
Shell Energy 3.10%
Avro Energy 1.50%
Green Network Energy 1.40%
People’s Energy 0.90%
So Energy 0.80%
Together Energy 0.70%
E 0.70%
Outfox The Market 0.30%
Source: Cornwall Insight 
Depending on how energy firms are categorised will depend on which are included in Big Six

Depending on how energy firms are categorised will depend on which are included in Big Six

How popular are challenger suppliers?

There has been a large increase in households moving to smaller suppliers in recent ties.  

The collective small and medium share of domestic energy accounts stood at 12.1 per cent at the end of 2015 whilst it grew to 30.3 per cent by the end of 2020, according to Cornwall Insight Domestic Market Share Survey, showing a significant growth in popularity.

By definition, the small and medium share do not include any of the Big Six providers and are primarily challenger firms.

At present, established challenger suppliers seem to be consistently increasing their share of the market.

This is likely due to more households switching provider than ever with just under six millions moving suppliers in 2020, according to Energy UK. 

In December 2020, of all domestic switches, 28 per cent were from larger to small and mid-tier suppliers, highlighting the growing shift. 

Smaller suppliers are definitely catching up to the bigger companies with Bulb providing energy to 1.6million homes and Octopus supplying around 1.5million homes. 

Scottish Power supplies 5.3million homes, showing both are not far off competing with the firm if they continues their current rate of progression. 

Why are they now coming to the forefront?  

Some experts believe the reason for the rise in households switching to challenger suppliers is due to their competitive pricing.

Peter Earl, head of energy at Compare the Market, said: ‘The collective of the Big Six is becoming defunct in the energy market.

‘The previous heavyweight suppliers have been losing ground to newer entrants and competitors that have increased their customer bases through tariff innovation and regularly offering competitively priced tariffs.’

Anna Moss, Retail Manager at Cornwall Insight, added: ‘Newer brands have to win all their customers from entering the market. One way to do this is to price more competitively, which can reflect a few factors.’

‘Challenger suppliers don’t face all the same policy costs as larger suppliers, for example, energy company obligation and warm homes discount. Also, newer organisations tend to be more agile.

Octopus Energy is one of the challenger suppliers that has increased in popularity recently

Octopus Energy is one of the challenger suppliers that has increased in popularity recently

‘With newer, more efficient systems and outsourced services, they might offer tariffs at low or negative margins to build their customer base. However, this would be down to the supplier’s business model.’

Other reasons include the lack of customer service many customers have received over the years from the Big Six, favouring newer providers that have been praised on their commitment to helping their consumers.

For example, small supplier Outfox the Market claimed the top spot in Which?’s annual customer satisfaction survey with Octopus Energy coming in second place.

Challenger firms Avro Energy, People’s Energy and Pure Planet rounded up the top five whilst the traditional Big Six suppliers all landed right at the bottom.

Earl said: ‘Bigger suppliers can no longer rely solely on their brand power and have been let down by track records of poor customer service and less competitive pricing. 

‘Challenger suppliers have risen to the opportunity and grown in popularity, focusing on more digitally savvy customers and renewable tariffs.’

Moss added: ‘They also offer a change of service from whatever the customer has already been receiving – better service or certificate backed renewable electricity, or vouchers, or bundled tariffs with other services.’

She believes that bringing something new and innovative to the table as well as offering renewable energy is key to the success of smaller firms.  

‘The challenge for challenger brands is to offer something better than standard – standard for many being a large supplier Standard Variable Tariff (SVT) – that would have to be on price and usually an additional factor, like renewable energy or a highly rated level of service.

‘We’ve seen lots of consolidation over the last couple of years, with the larger of the challenger brands securing their market position by acquiring the customer books of failing or exiting suppliers as well as organic growth.

‘Generally, we’ve continued to see the collective share of small and medium suppliers increase even as the number of competitors has shrunk. 

‘Still, the large suppliers have responded to competitive pressure and the price cap’s impact by bringing in efficiencies and comparable offers.’

Challenger suppliers are using technology to help persuade customers to use their services

Challenger suppliers are using technology to help persuade customers to use their services

Will Owen, energy expert at Uswitch, agrees that challenger suppliers who have a more modern approach appeals to people as it is more unique and exciting.  

He said: ‘Challenger brands have invested heavily in customer service in recent years, as online reviews and word of mouth have become increasingly important in such a crowded and competitive market.

‘Their approach is often to make people feel like they have a direct connection with the company. For example, Octopus’ CEO Greg Jackson communicates directly with customers, and the supplier even offers them the chance to name their wind farms.

‘The challenger brands emphasise the importance of answering customer service calls as soon as possible, but also making that waiting experience as painless as they can. 

‘Octopus has even injected some fun into its customer service calls, with its hold music featuring the number one hit from when a customer was 14.

‘Challenger brands, who have in recent years been working hard to stand out from the better-known competition, have also often taken a tech-first approach, regularly innovating with new agile tariffs and even releasing podcasts to reach consumers in a different way.

‘We can expect to see these brands finding new ways to stand out through new green initiatives and products in the coming years.’

What will happen in the future?

Whether small suppliers will continue to increase their market share will largely depend on many factors, according to Cornwall Insight.

This includes how they price against their competitors and changes in proposed switching methods like opt-in/opt-out that came up in the Energy White Paper.

It also includes changes to new markets like electric vehicles and smart home appliances that could see the user engaging more in increasing and decreasing their consumption at times of low charges.

The Energy White paper said it will look to make the market more competitive by offering people a simple method of switching to a cheaper energy tariff and testing how reliable it would be to automatically switch consumers to fairer deals to tackle loyalty penalties.

The price cap is also likely to continue to have an impact on the tariffs people stay on. 

It was launched in January 2019 by watchdog, Ofgem, as a way of keeping down the cost for households across the UK. 

However, many experts said suppliers were using the cap as a target rather than a limit and still encouraged customers to switch to a cheaper deal. 

Every six months the limit is adjusted and the most recent change, due to come into effect on April 1, has increased by £96 to £1,138 for 11million default tariff customers. 

This was due to an increase in wholesale costs but the continuing changes, and the increases, are likely to motivate more households to switch to a cheaper deal, especially during a time when so many are in financial difficulties due to the pandemic. 

Earl said: ‘It is difficult to predict what happens next for the energy market. 

‘We could see more consolidation with some of the smaller suppliers failing or being acquired by more established suppliers, we could see even more new entrants or we could see a period of stabilisation where things don’t significantly change at a supplier level.’ 

As for now, it seems only time will tell.  

Could you cut your energy bills… or help the planet and go green? 

Millions of people could be needlessly overpaying for their energy as they fail to switch to providers who offer cheaper deal.

They may also be missing out on the opportunity to help the planet and fight climate change, by switching to green deals that offer electricity from renewable sources and more environmentally-friendly gas.

With our partner, Compare the Market, you can compare energy tariffs and exclusive deals.

Why not find out if you could save hundreds of pounds a year on your energy or go green?

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