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It’s a buyer’s market out there

Peter Nisbet, Director, Risk Management Services, Utilyx

As regulators prepare to probe concerns over lack of competition in the domestic energy market, they don’t need to look too far to see what healthy rivalry looks like in action.

The emergence of a number of new business energy suppliers is leading to some aggressive elbowing for market share. These smaller suppliers are keen to build scale rapidly and are taking an innovative approach to encourage customers to switch. Concerned that they are seeing their position in the market eroded, the Big 6 are fighting back.

Of course, this is all good news for buyers at a time when those on flexible contracts in particular are also in a strong position to capitalise on downward pressure on longer-term energy prices due to factors including the freezing of the carbon tax and increasing LNG supply. We are already seeing the evidence of increased competition through the many retendering exercises we have carried out for flexible energy contract clients in recent months.

A portfolio which might have attracted four bids when it was first offered a couple of years ago may now get twice as many. Suppliers are also offering incentives to try and secure business. The most obvious room for manoeuvre is on management fees and we are seeing very low charges currently being offered. In one case, we helped a client secure a saving of more than 50% off the fee they had been paying with the same supplier previously.

It’s not just on management fees where the benefits of increased competition are being seen. Discounts such as reduced cost levy-exempt energy – often much more valuable than even the supplier margin - are being offered. More favourable contract terms such as longer payment periods and wider volume tolerances are also on the table. In the current market the benefits should outweigh the costs involved with retendering but it is important to choose a consultancy carefully to get the most out of the process.

The strength of relationships a broker has with suppliers for example is crucial.  The more influential the broker, the better terms they are likely to be able to get. In many cases, the real value from using a broker comes from their ability to negotiate with suppliers to get them to go that bit further from their initial offer to secure your business. In an increasingly sophisticated market, an in-depth understanding of how different suppliers price, what charges are subject to change and the likely long term trends is also critical.