Why would you choose a small energy company? Find out whether the tariffs and service offered by a small company would work for you.
Switching to a small energy company might save you money and you can use GoCompare to find the best deal for you. Here’s what you need to know about smaller energy suppliers.
Six companies used to dominate the UK energy sector: British Gas, Npower, SSE, Scottish Power, E.ON and EDF Energy. These are the oldest private energy companies in the UK, dating back to when the energy sector was privatised in the 1990s.
But E.On acquired NPower in 2019, and Ovo bought SSE's retail arm in January 2020, so it's now also included in OfGem's definition of 'large legacy suppliers'. It's not so clearly defined as 'six' companies any more.
These large suppliers were once associated with relatively high levels of customer complaints and high profits. but since more smaller energy companies have entered the market, increased competition has improved the situation.
Complaints against large legacy energy companies have fallen since this market shake-up. In the final quarter of 2020, the eight largest energy companies had 1,574 complaints per 100,000 customer accounts; medium-sized companies had 1,361 and small companies had 782.
There are lots of smaller energy companies seeking to bring something to the market. The best-known ones include Shell Energy (previously called First Utility), Good Energy, Ecotricity, Octopus Energy and Utility Warehouse. You should always check whether the tariffs and terms offered by a company suit your individual needs before switching.
Some smaller energy companies have gone bust in he last few years, making customers more reluctant to switch to them. In January 2021, just 22% of switches were from large suppliers to small or mid-size ones - down from 38% in January 2019.
But all energy companies are regulated by Ofgem, and you have the same protection if your supplier goes bust, whether it’s a large company or a small one.
Small energy companies often have lower running costs than big suppliers. Plus, the government wants to encourage new companies to enter the energy market in order to improve competition.
When companies have fewer than 250,000 customers, suppliers have looser licence restrictions. For example, they are not required to pay green levies. The savings mean they can offer lower tariffs to customers when they compare energy prices.
Small energy suppliers often offer lower prices tariffs than the bigger companies in order to compete with them for customers.
Small companies can operate in niche markets, focusing on a particular type of customer - for example, some companies offer renewable energy to customers concerned about the environment.
For some customers, the experience of customer service may be better with a small company than a larger one.
Small companies are subject to less scrutiny than their larger competitors, meaning companies might experience financial or operational problems without much warning.
A number of small energy companies have become insolvent, while larger companies are less vulnerable to market forces.
Energy suppliers beneath a certain size are not obliged to be part of the Warm Home Discount Scheme. If you qualify for the scheme, it’s important to check if an energy company takes part before switching.
Energy regulator Ofgem steps in if a supplier stops trading. Ofgem invites other companies to bid for the insolvent supplier’s customers base, choosing a new supplier based on a competitive process.
You will be moved from a contract with the insolvent energy supplier to a new supplier. The new supplier is not obliged to give you the same tariff as the old company, but they do need to honour any credit on your account.
If you wish to switch to a supplier you choose yourself, you are free to do so - but it is advisable to wait if you have credit on your account that you want to claim back.