Energy supply upstarts face struggle to match Big Six

THE burgeoning independent energy supply market is braced for a heavy hit as rocketing market prices make it harder for smaller companies to compete against larger energy rivals.

This summer energy markets have shown their steepest climbs in half a decade, which is already putting pressure on smaller companies to raise their prices while big six suppliers are able to delay price hikes, which are often responsible for an exodus of customers.

In recent years the Big Six energy suppliers have lost market share to a independent companies which typically rely on the wholesale energy markets to secure supply rather than producing their own gas and power by owning expensive production assets.

Independents can offer price cuts quicker than the Big Six which hedge their wholesale buying one to two years in advance. This has helped the small companies gain market share as market prices tumbled but analysts at Morgan Stanley have warned that this strategy could backfire amid rapidly rising energy prices.

“In UK supply, smaller supplier market share gains have been the standout change over the last few years at 12pc. This has been driven by falling commodity prices enabling smaller suppliers to offer cheaper tariffs than the Big Six who purchase energy one to two years in advance and thus at higher prices,” said the bank’s research analysts.

Ovo Energy, a leading independent supplier, has increased its energy prices twice this summer, announcing a price hike of 7.6pc on its “Better Energy” monthly tariff in June and a second rise of 3.6pc on Wednesday. Customers on the Ovo tariff are expected to see an annual price increase of almost £95 as a result of rising wholesale costs.