SEM Chart of the Week
Love Ireland: Retail market trends in 2018
The Commission for the Regulation of Utilities (CRU) published its 2018 Electricity and Gas Retail Markets Annual Report on 8 July. The document summarised the key trends over the year, which covered switching, price changes and market share of the incumbent suppliers. In this edition of SEM Chart of the Week we look at some of the key patterns highlighted in the report.
My head’s been turned
Switching continued in 2018 and a new record for gas annual switching rate was set at 20%, up from 18%. After decreasing annually between 2013 and 2016, the rate has picked up over the last two years.
The electricity switching rate has been fairly consistent since 2014 – around the 14% mark – though a new record was set for electricity switching in Q418, when it reached the highest quarterly level recorded since Q111.
The CRU has attributed this switching trend to measures introduced over the year. As of the end of 2017, suppliers are required to send customers an Annual Prompt if they’ve been on the same tariff for over three years, 30 days’ notice before a fixed tariff ends, and they are also required to include an Estimated Annual Bill in all marketing of tariffs to create more transparency.
Customers also now have more opportunity to engage with the market when moving to new premises. As of February 2018 they are able to choose a new supplier, whereas previously, the energy supply of all new builds would automatically be completed by the default Suppliers of Last Resort. This change has been successful to some extent. In Q418, the share of new registrations for Electric Ireland (electricity default supplier) fell to 59%, down from 76% in Q417, and Bord Gáis Energy (gas default supplier) was associated with 58% of new registrations, compared to 64% in Q417.
However, evidence indicates that there is a low level of repeat switching in the market. Almost half (48%) of domestic electricity consumers who had switched in the last 12 months defaulted to a standard variable tariff in 2018 (37% for gas consumers). The report estimated that customers who regularly switch their dual fuel supply have saved €1,696 over the last four years, and relatively few consumers are taking this opportunity – and those who do aren’t necessarily remaining engaged.
It’s not loyalty island
Over the year, the market share of the incumbent suppliers continued to decline. Electric Ireland and Bord Gáis Energy, which are the incumbent suppliers for electricity and gas, now respectively have market shares of 48% and 45% in their corresponding markets in terms of consumption.
The report displays a measure of market concentration in the domestic, small business and large business segments. This has decreased steadily over the past two years in the domestic and small business markets, thus indicating that competition has led to a less concentrated market. The medium business market has displayed little change and large business showed a dramatic increase in Q418. Meanwhile, the gas market showed gradual decreases across all segments.
The cost of annual electricity and gas bills of suppliers’ standard tariffs increased by an average of 5% and 13% respectively throughout 2018, driven by a 33% increase in wholesale costs. Seven suppliers announced price increases towards the end of Q218 and start of Q318, and of these seven, four announced additional price rises in Q418. At the end of the year, the cheapest domestic plans were offered by: Energia (dual fuel and discount electricity); BEenergy (standard electricity); Just Energy (standard gas), which is currently in the process of exiting the market; and Flogas (discount gas). The offer of cheaper tariffs is likely a driving factor behind customers switching away from the incumbent suppliers.
It is what it is
Though switching is up on 2017 and the market share of the incumbent suppliers is declining, which suggests a more engaged consumer market, other metrics suggest otherwise. With less than half of gas and electricity customers repeatedly switching after being rolled off a fixed tariff onto a standard variable, there is still an opportunity for encouraging engagement.
With the recent arrival of a large new entrant, Iberdrola, and interest from other new entrants, the effects of competition should lead to increased switching and better deals for consumers. However, this will need to continue to be supported by the CRU through further measures to help consumers engage with the market.
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