SEM Chart of the Week
Not mushroom for competitive prices: switching behaviours in the SEM
The Commission for the Regulation of Utilities (CRU) published its August 2019 Customer Switching Report for the Electricity and Gas Retail Markets on 24 September. In this edition of SEM Chart of the Week, we compare monthly switching trends with CRU’s quarterly Electricity and Gas Retail Markets Report to explore whether fluctuations in tariff prices drive switching behaviours in domestic and non-domestic users.
Figure 1 compares energy switching figures from the CRU’s quarterly Electricity and Gas Retail Markets Report, (the green bars) with:
- the average of suppliers’ standard tariff (blue line)
- the average cost of suppliers’ cheapest standard tariff (yellow line)
- the average cost of suppliers’ standard prepayment tariff (dark blue line), and
- the average of each suppliers’ cheapest prepayment tariff (pink line) (where consistent data is available).
Here We Go!
The total number of switches completed in the electricity market in 2018 was 331,900. This represents an increase of 4.18% from 2017 when 318,596 customers switched. Switching increases can be put down to CRU’s policies in 2018, helping enhance the level of customer engagement in energy markets. For example, customers now have more opportunity to engage with the market when moving to new premises. As of February 2018, they were able to choose a new supplier, whereas previously, the energy supply of all new builds would be automatically completed by the default Suppliers of Last Resort.
For the past three years, the month of November has seen the highest number of switches in the SEM with November 2018, marking a seven-year high (see Figure 1). Contract renewal dates in the Large Energy User (LEU) sector generally take place around November time each year, explaining some of the differences in switching rates across each year in this sector.
Domestic switching rates are more evenly spread throughout the year and here is where tariff prices may play a role of importance. The highest average standard tariff price for the last two years has occurred in the third quarter. This seasonal trend is due to the rise in wholesale prices, which cause suppliers to increase energy tariff prices. As these tariff prices are driven upwards, the domestic users have more of an incentive to switch.
Cheep Cheep Beach
Q119 was the first time in two years, the price differential between the average standard tariff and cheapest standard tariffs exceeded €152. This difference reached a high of €181, up €31 on the previous quarter. Here, we may start to see a stronger correlation of price differences and switching rates, especially as Q119 also recorded a three-year high in switching for this period.
This greater price differential has come as part of the new SEM trading arrangements which went live in October 2018. Since October, suppliers are now required to trade and hedge their positions in the market, which can provide competitive advantages for those that do this well.
Q119 is the first time we have seen dramatic price differentials since the new trading arrangements. Therefore, CRU’s next quarterly release may allow us to confirm this correlation or dismiss it if other factors play larger roles in switching behaviour.
Tick Tock Clock
With the anticipated wait for the quarterly release, we can look to CRU’s monthly release of its Customer Switching Report for the Electricity and Gas Retail Markets. This report allows us to see switching rates for Q219 and the first two months of Q319. Quarter-on-quarter switching in Q219 has fallen, however, the first two months till Q319 are setting up for an all-time high.
Only time and report releases will indicate if the Q219 drop and Q319 high are as a result of differences in supplier hedging strategies.
Overall, switching in Ireland keeps its trend of gradual increase and has become more of a “when” rather than an “if” for engaged customers.