Energy market briefing


In November 2023 Ofgem announced the energy price cap from January 2024 will be £1,928 for the average UK household, £31 more than the Cornwall Insights prediction. 

H1 2023 saw over 1 million fuel switches despite the majority of energy suppliers not actively acquiring new customers. This is a 68% increase on H1 2022, but still down 75% on H1 2021 (pre-energy crisis – in March 2021 there were a total of 606,000 switches, counting electricity and gas). We expect to see this positive trend in switching accelerate in 2024 for a number of reasons:  

  1. Consumers are seeking certainty around their energy bills after a period of considerable volatility; 
  2. Many consumers have not chosen their current supplier because their previous supplier ceased trading; 
  3. Saving opportunities against the price cap will start to materialise as energy wholesale prices stabilise; and 
  4. Cornwall Insights research shows 92% of consumers are on variable tariffs, a historic high.

Global Energy Prices Spiked 

The 2021/22 global energy crisis saw a spike in wholesale gas prices caused by the war in Ukraine, coupled with the effects of the COVID-19 pandemic. Western Europe was forced to replace its reliance on Russian gas supplies, causing demand for alternative gas sources to increase driving up global energy pricing.

UK Market Impact 

Ofgem, the UK energy regulator, focused for the last decade on promoting market competition, causing an expansion over time in the number of suppliers within the market.  As a result, there was a wide variance in the balance sheet stability of providers. According to Ofgem at its peak, the UK was the most competitive domestic energy market globally with 57 active retail energy brands in 2021. 

Spiking wholesale energy market pricing caused many retail energy brands to fail. Many of these companies operated with smaller cash reserves and collapsed due to unsustainable  losses caused by the overallocation of out of the money fixed tariff customer contracts on their balance sheets. The resulting impact was 41 

energy brands failed in rapid succession. According to Ofgem the number of active energy companies halving between September and December 2021. 

For the Big Six retail energy providers, they blended risk with future committed purchasing power in order to contain the temporary losses created by the pricing spikes of 2021. Customers of failed suppliers were moved to the energy supplier of last resort. This process saw UK customers migrate to surviving energy brands, financially supported by Ofgem. 

By September 2023, 20 domestic energy brands remained in the market.

Government Intervention

Whilst the price cap was introduced in January 2019, to prevent an economic and social crisis, the UK Government was forced to subsidise the cost of domestic energy by setting the price cap below the market wholesale pricing. 

According to, by the summer of 2023, the UK Government had spent £40 billion in subsidies for the domestic energy market. The current government’s focus is to phase out the price cap over the next 12-months and to look at more targeted interventions for vulnerable consumers such as social tariffs.

Volatility Reduction

International wholesale pricing remains volatile and subject to change. For example, a potential strike of Australian gas workers caused global wholesale gas prices to increase by 8% in August 2023. Although there are short term spikes, wholesale energy pricing is continuing to  drop. 

The Price Cap was reduced from £3,280 to £2,074 in July and another 7% drop in October 2023. As a result, the average UK household bill has fallen by a further £426 since September. These drops have led to inflation dropping to 4.6% in November 2023. The lowest level in 2 years.

Most recently, Ofgem announced that the Price Cap from January 2024 will increase by 5% to £1,928, 1.6% higher than the prediction of Cornwall Insights. 

Whilst prices have fallen, the Government’s £400 government subsidy is being removed for most households.

Market Pricing

The six largest suppliers in the market today account for 92% of the domestic energy market. Following the recent acquisition of Bulb and Shell Energy, Octopus Energy is now the largest supplier in the market accounting for 21% of UK retail energy customers.

As of September 2023, the number of fixed price contracts were increasing, half of available offers were also available to the whole market, with tariffs below the Price Cap.

According to Ofgem in September 2023 the average standard variable tariffs with legacy suppliers were £2,073, just below the price cap.

Industry Appetite Increasing 

Since the energy crisis Ofgem has focused on market stabilisation, ensuring the remaining retail energy brands have sustainable business models.  

At the same time Ofgem has rightly increased the entrance requirements for new energy firms.  

Up until April 2024 any energy supplier that acquires a new customer has to pay a Market Stabilisation Charge (MSC) to the supplier they acquired the customer from. This is designed to prevent predatory switching behaviour. Once this charge has been removed we will see a much higher appetite from suppliers wanting to acquire new customers.

Standing Charges Debate 

Martin Lewis of MoneySavingExpert has been campaigning on standing charges. 

A standing charge is added to all gas and electricity bills by the energy supplier as a fixed daily amount that consumers have to pay, no matter how much energy is used. The charge covers the cost of supplying the property with gas and electricity. 

The issue is the charges disproportionately affect vulnerable consumers on low incomes that use less energy. 

Energy UK, the membership body for retail energy suppliers, is pushing the Government to consider help to provide increased assistance to the 5.8 million households (21% of UK homes)  struggling with their energy bills. 


87% of consumers are now on a variable tariff meaning they can switch at any time without incurring a penalty fee from their supplier. With that in mind, latest research from McKinsey suggests over 40% of consumers are looking to switch, this is 30% higher than pre-crisis switching levels. 

In October 2023, 260,000 switches occurred, an increase on September and 71% higher than October 2022. 

Ofgem Chief Executive, Jonathan Brearley in November said:

“We are also seeing the return of choice to the market, which is a positive sign and customers could benefit from shopping around with a range of tariffs now available offering the security of a fixed rate or a more flexible deal that tracks below the Price Cap.”

Energy suppliers looking to acquire customers are divided into two broad groups:

1. Grow Customer Base

New market entrants will be looking to acquire customers. Their acquisition models will focus on lower cost tariffs and competitive fixed cost tariffs.

2. Retain & Grow High Value Customers

The incumbents and a selection of new entrants are looking to target high value customers.

Their business models have evolved to prioritise revenue generation from value added services beyond the supply of energy, for example electric car charging, solar panels, boiler support and heat pump installations. 

This targeting is an opportunity for banks and fintechs to support suppliers in surfacing money saving and sustainable products to the right customers.