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Who switched energy suppliers in The Big Switch and why?

a big switch on red background

In 2012 Which? and 38 Degrees launched the UK’s first and largest collective energy switch. With 145,000 people taking part, this provided a unique opportunity to analyse real life switching decisions.

At the Centre for Competition Policy – part of the University of East Anglia – we were able to analyse the wealth of data collected from The Big Switch, as well as carrying out a series of follow-up questionnaires with participants. Our aim was to get a better understanding of the factors influencing consumers’ decisions to switch energy supplier.

If you responded to one of these surveys, we want to thank you for taking part – without you the research wouldn’t have been possible.

Reasons for switching energy suppliers

We know that the potential savings are an important factor for switching, and there was a substantial average saving of £120 available to participants of The Big Switch. In total, a quarter of the people who could have saved decided to switch, collectively saving an impressive £5.5m. But this does also suggest that people’s energy switching decisions can be influenced by other factors, even where there’s money to be saved.

After getting energy suppliers to compete, the Big Switch offered the best deal on the market for the majority of the UK. However, in some cases the deal wasn’t the cheapest for particular participants. To make sure everyone saw the cheapest deal for them, Which? showed the cheapest deal in their area alongside The Big Switch offer. But displaying two offers seems to have deterred people from switching rather than spurring them on. This is a particularly interesting result; does comparing more offers make you feel informed or are too many options overwhelming?

We also found that the length of time it took actual switchers to complete the switching process was generally less than the length of time non-switchers expected the process would take. This suggests a perceived hassle factor, which puts people off switching their energy supplier.

Why do you switch?

Other reasons for people switching included: using accurate energy consumption information from their bills to generate a quote, rather than just estimating it; taking part with the aim of saving money rather than just out of curiosity; and preferring the ethical or environmental stance of the new supplier.

Choosing not to switch was associated with relying on an estimate of your energy bill; facing an exit fee when leaving an energy company; and being busy during the period of The Big Switch.

Do any of the above factors fit with your experiences of switching energy suppliers? Do you find the amount of choice overwhelming or are you confident navigating the options? Is saving money the main driver for you to consider switching?

Once again we would like to thank those of you who took part in this exercise and provided survey responses. If you’d like to see the full analysis, you can download the technical report here.

This is a guest post by David Deller at the Centre for Competition Policy – part of the University of East Anglia. All opinions are David’s own, not necessarily those of Which?

Comments
Member

There’s a new Which? petition asking me to fix the Big 6. They say Ecotricity, Ebico and Ovo lead the way. Well, they might in customer service but come nowhere near my current supplier in cost. I can tolerate occasional CS problems but cost is what matters to me. Prompted by this petition I checked Which?Switch and found my current supplier still tops, but with a new tariff that will reduce my bill by around 5% due mainly to a reduced gas price. I’ve just changed to it online.

Incidentally Ofgem are consulting on their work programme for 2015-6. If you want to comment you can find the programme and link here:
https://www.ofgem.gov.uk/publications-and-updates/ofgem-our-strategy?utm_medium=email&utm_source&utm_campaign=5268181_Daily-Alert_22-01-2015&utm_content=$LINK_KEYWORD$&dm_i=1QCB,34WYD,F31FFV,B8NMI,1

Member

Latest News.

NPower is cutting its standard gas prices by an average of 5.1% from February 16th.

Member

Tariffs are changing quite often at present, particularly with volatility in the gas market. Might it be useful if, when asking Which?Switch for price comparisons, you could opt-in for a monthly update to give your cheapest current deals by email. Particularly useful when the promised quick-switching comes into force and changing tariffs more often will be worthwhile financially?

Member

As only standard prices are scheduled to be cut presumably people on fixed tariffs will miss out as they will be penalised for switching to another supplier. This is something the CMA ought to address as this practice surely stifles competition. Regular updates on the volatility of the energy markets would be welcome as better communication and transparency would assist in the switching process, enabling consumers to have more autonomy over their energy affairs and encourage more people to switch, as long as this doesn’t add to consumers bills, but as long as there is reliance on comparison sites I fail to see how this could happen unless funded from general taxation.

Member

Beryl, these days many fixed tariffs have no exit penalties if you switch suppliers, and certainly not when you change tariffs with the same supplier, so no problems there.

Reduced gas prices do not only show on standard tariffs, but also on fixed tariffs – a new version just appears that you switch to, as I have in a matter of minutes getting a 5% reduction.

Having put your details into a comparison site it should be simple for an email to be automatically sent advising of better deals. I already get that from one of my energy suppliers when the saving exceeds £1 a week.

Comparison sites are watched for good practice by Ofgem – they have a Confidence Code, currently being updated

https://www.ofgem.gov.uk/publications-and-updates/confidence-code-review-january-2015-policy-decision?utm_medium=email&utm_source&utm_campaign=5299461_Daily-Alert_30-01-2015&utm_content=$LINK_KEYWORD$&dm_i=1QCB,35L39,F31FFV,BAZOI,1

No need for more Govt. involvment.

Member

Our supplier, E.On, offers penalty-free switches to lower-priced tariffs within their own tariff menu as they become available [which, as Malcolm, says has become fairly frequent lately], so it isn’t always necessary to switch to a diffferent company to get a better rate. If an alternative company’s prices are so much better, then E.On’s exit penalty of £5 per fuel is hardly a deal-breaker anyway. One consequence of switching internally is that a new contract period starts immediately putting off the day when you can make a penalty-free exit.

I agree with Beryl that at the moment there is a case for encouraging people to switch because that is the best way to make competition effective. But since energy is an essential commodity we should be at ease over it and not have to keep worrying about fractional movements in prices and changing suppliers all the time – switching is costing the industry millions of pounds a year and we’re all paying for it. Ofgem has made a useful start on consumer-biased regulation by rationalising and harmonising the tariff structures to make comparisons easier. In fact comparison websites are becoming less relevant as the myriad of tariff types has been drastically boiled down.

I saw an interesting breakdown of “the costs that make up energy bills” on a friend’s recent statement from SSE as follows: Buying the energy 52%, delivering it 24%, govt. environmental & social schemes 8%, billing, customer services & IT 6%, VAT 5%, and supply business profit 5%. So the reduction in global market prices for oil and LPG bears on only half the bill. And as has been seen recently, EDF customers won’t see much benefit because that company made a price promise to customers that anticipated increases rather than reductions in input costs. EDF entered into forward procurement contracts that looked very good at the time but have now been overtaken by falling world prices which cannot be passed through to customers [who are said to switching in droves].

Sometime around the end of May-early June the government, whoever they are, will have to give consideration to how to compensate for the fall in VAT revenues from lower energy bills and lower prices on other goods and services. Savings on the government’s own energy consumption and other purchasing won’t offset much of it so some cunning book-balancing required. I would expect it to be wrapped up with increased reliefs to the offshore oil and gas industry and putatively funded from economic growth resulting from lower input costs for industry and commerce [to the extent that that isn’t all absorbed in countering the impact of devaluation in the Eurozone].

Member

John, Ofgem publish, monthly, an SMI (Supply Market Indicator) that shows, in an average domestic energy bill, how an average major supplier’s charges are made up. 44% gas and electricity, 23% network (transmission),7% environmental and social, 13% supplier operating,

It is estimated that “environmental and social obligations” cost us £93 – perhaps these should be funded elsewhere?

More importantly it shows that the pre-tax margin the supplier makes has increased from 3.9% in 2013 to an estimated 6% last year and a predicted 9.6% this year – that is a 2 1/2 times increase in % margin. As it is an average clearly some will make more than this. That, to me, seems an overgenerous increase in return at our expense. Should not Ofgem be stepping in here to protect consumers?

Member

If environmental and social costs were transferred elsewhere, then the same should apply to standing charges. It’s not difficult to see that standing charges bear little relation to the actual cost of supplying gas and electricity to an individual home.

At present, those who cannot afford to heat their homes adequately are subsidising those who are heavy users of energy, for whatever reason.