Energy Market Insights

There’s a ~18% (300k) reduction in accounts in debt with an arrangement to repay their debt – which could mean 300k customers had an arrangement but have not been able to maintain it.
Small headshot image of Ian Barker, Managing Partner at BFY Group.

Ian Barker

Managing Partner

Customer Debt

Total Ofgem reported debt is now at ~£3bn for Q3-2023

Total Ofgem reported debt is now at ~£3bn for Q3-2023, 50% (~£1bn) higher than Q3-2022.

The primary driver is an £800m increase from accounts with No Arrangement in place to repay their debt.

  • We see a 20% (300k) increase in account numbers, which means more than 1.8m accounts are in debt without an arrangement.
  • A 40% increase in balances per account to > £1,100.

As Ofgem reports this on an accounts basis, this means almost 1m households owe an average of £2,200 and have no arrangement in place to repay the debt with their supplier.

Click 'Read more' to get the full insight.

PowerPoint slide showing analysis of the January 2024 Energy Price Cap.
The nominal TDCV saving of ~2.5% - 5% has already been seen by customers, but if we have a cold winter (as some forecasters are predicting) then bills will rise further.

Matt Turner

Manager

Energy Price Cap

Most customers worse off due to Jan 2024 Energy Price Cap

OFGEM have released their updated Energy Price Cap figures for Q1-24, and our modelling shows this will make most customers worse off compared to Q1-23.

Analysis from the BFY Group team shows:

  • Low consuming customers are likely to be ~27% worse off
  • Medium consuming customers are likely to be ~6% worse off
  • High consuming customers are likely to be ~5% worse off

OFGEM have reduced their estimated annual consumption (TDCV’s) - but this won’t result in a further saving for customers, as this is an updated reflection of historic consumption.

Click 'Read more' to get the full insight.

It’s evident that in some areas of the country, the proportion of earnings spent on energy is significantly larger than others, which poses an interesting question for suppliers. Could this information be better reflected in models for vulnerability and debt management?

John de Bono

Consultant

Energy Bills

Localised Energy Bills – How do they differ to the Price Cap?

Ofgem's Energy Price Cap - we're all familiar with the purpose of its headline figure (previously set at £1,834). But rarely do we discuss the reality of this estimation, and how it can't reflect the actual bills faced by households across the country.

The current approach is problematic. By using the national average for energy consumption, the headline figure ignores regional variations in usage and spend.

While finding a more effective approach is a much larger discussion, our latest analysis could help to inform this thinking, looking at typical local bills vs the Price Cap. This also poses a potential opportunity for suppliers to re-think models for vulnerability and debt management.

Click 'Read more' to get the full insight.

Our debt benchmarking suggests the full view of debt in the industry is 2.5x to 3.3x higher than currently reported. This likely means that the most challenged customers are excluded from the reporting.

Tom Bromwich

Director

Customer Debt

Customer indebtedness is set to worsen this winter

Customer indebtedness is growing at an unsustainable rate. And it’s projected to get worse as we head into winter.

Analysis from our Market Insights supports this, highlighting three key points, which we’ve explored further in this blog.

  1. The increase in actual bills over the Last Twelve Months (LTM) is unsurprisingly driving an increase in customer indebtedness
  2. So as prices rise, the industry as a whole falls more into debt
  3. Two thirds of this debt (>£1.1bn) relates to customers without an agreed repayment arrangement – and these customers are slipping further into debt

Click 'Read more' to get the full insight.

Prices while high, have started to stabilise. We’re seeing some suppliers now starting to offer fixed prices at a discount to the cap. What now needs to happen is a return to a functioning market. If a price cap is to be in existence, then it should serve a specific purpose.
Small headshot image of Ian Barker, Managing Partner at BFY Group.

Ian Barker

Managing Partner

Energy Price Cap

The Energy Price Cap – A tragedy in four acts

As we start to see acquisition tariffs which are below the level of the Price Cap, we've reviewed the potted history of the Price Cap over the past two years.

The blog post 'The Price Cap - A tragedy in four acts' walks through the detail in the chart on the right.

𝗔𝗰𝘁 𝟭 – Inability to hedge in line with / price above the cap results in around 30 challenger brands going into SoLR

𝗔𝗰𝘁 𝟮 – Customers protected; Material losses for remaining suppliers

𝗔𝗰𝘁 𝟯 – Cap lags the wholesale market

𝗔𝗰𝘁 𝟰 – Stabilisation (but high prices)

Click 'Read more' to get the full insight.

Debt repayment lengths appear challenging for a number of suppliers, and when the average repayment length for an energy debt is ~10 years, we have to ask "Is this really the best outcome for the customer?"

Matt Turner

Manager

Customer Debt

Market debt levels continue to rise with prices

Market debt levels have continued to rise as the the price cap rises - however we've also seen customers absorb a greater proportion of the price increases than expected. This isn't all good news - we're potentially starting to see a latent effect where customers are running out of options by which to cover the increased costs which will give rise to increased debt levels in Q4-23 / Q1-24.

The use of Pre-Payment meters for debt purposes has recently been a hot topic. As well as the need for customers to access electricity and gas, suppliers have a duty to customers to help prevent debt - in our Financial Services practice we see the FCA having specific Consumer Duty rules to act in good faith and deliver good customer outcomes - which includes preventing debt build up.

Benchmarking suppliers current approaches to Pre-Payment debt management shows a significant spread across suppliers and fuels.

Click 'Read more' to get the full insight.

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Small headshot image of Ian Barker, Managing Partner at BFY Group.

Ian Barker

Managing Partner

Ian shapes the BFY vision and inspires our team to bring it to life, while remaining central to complex client engagements in Strategy, Commercial, and Operations.

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Tom Bromwich

Director

Tom leads client engagements with a particular focus on commercial strategy, pricing, customer acquisition and retention.

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Matt Turner

Manager

Matt helps lead clients through key strategic projects exploring growth opportunities, business models, competitive advantage, and mergers & acquisitions.

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Zander Cleves

Manager

Zander specialises in change management and business transformation, delivering commercial insight to clients through financial modelling.

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John de Bono

Consultant

John performs various analyses to provide BFY and their clients with unique insights, which help to inform decision making and inspire exceptional performance.

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