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Govt help for smaller energy suppliers is criticised

British Gas and npower claim support gives smaller companies unfair market advantage

Govt help for smaller energy suppliers criticisedThe government’s support for smaller energy suppliers has been criticised by members of the big six, who claim that it gives up-and-coming companies an unfair market advantage.

In a bid to break the dominance of the big six – British Gas, npower, EDF, E.ON, Scottish Power, and Scottish and Southern Energy – the government has introduced a number of measures to help smaller energy suppliers.

Those with fewer than 250,000 customers are exempt from taking part in schemes such as the Energy Company Obligation (ECO), which is mandatory for the market leaders and requires them to help insulate the properties of vulnerable customers.

It means that smaller companies can then use the money that would usually be spent on ECO improvements to meet overheads and other costs that would otherwise prevent them from gaining a greater market share.

Driving competition

According to the coalition, reducing the big six’s market share (which currently stands at around 95%) will help to drive innovation and competition in the market, which will ultimately mean consumers benefit through lower energy bills and better tariffs to choose from.

However, the big six argue that exempting smaller firms from obligations gives them an unfair market advantage, and enables them to knock approximately £100 off energy bills that the bigger companies are obliged to include in order to meet ECO obligations and other mandatory measures.

A spokesperson for British Gas told the Daily Telegraph that the company has concerns about what this will mean over the longer term.

“The operation of small supplier exemptions is already causing a gross market distortion,” the representative added.

The views were echoed by npower, which spoke of a “serious issue of distortion of competition in the retail energy market” as a result of the “ever-increasing” exemptions that the government is offering to smaller energy suppliers.

Action needed

The best solution, npower says, is to cut these exemptions because they now “markedly outweigh” any large supplier economies of scale, while reforms undermine the scope of the larger suppliers to compete with smaller competitors.

“Recommendations designed to improve the comparability etc. of competing prices should not be put forward at a time when there is such an unlevel playing field in favour of small suppliers,” the company added.

Though independent research has suggested that consumers can often get a better deal by switching to a  smaller supplier, npower claimed that the big six offer greater security, protecting people against the possibility of smaller firms exiting the market.

The provider also acknowledged that people prone to switching suppliers to find the cheapest deal may cause costs for those who remain with bigger suppliers to rise – many of whom are the intended target of help measures such as the ECO.

Fairness needed

Addressing these concerns, Stephen Fitzpatrick, managing director of OVO Energy – one of the smaller suppliers in question – told the Telegraph that he was actually in favour of some of the measures called for by big firms, such as the removal of the exemptions from the ECO.

However, he added that the big six continue to saddle the most vulnerable customers with these costs, and will continue to do so unless more is done to bring about greater competition and fairness in the market.