Should I switch to a small energy company?

We all like familiarity, and when it comes to energy suppliers, that often means sticking with household names rather than switching your essential services to an underdog.

But some newer and smaller suppliers offer great deals, and the potential for better customer service. So are they reliable, and is it worth switching?

We all like familiarity, and when it comes to energy suppliers, that often means sticking with household names rather than switching your essential services to an underdog.

But some newer and smaller suppliers offer great deals, and the potential for better customer service. So are they reliable, and is it worth switching?

Sofia Hutson
Energy expert
minute read
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Posted 18 OCTOBER 2021

What are the advantages of smaller energy providers? 

  • Lower overheads often translate to lower costs for customers.
  • Impressive customer service ratings
  • Online, digital-first service in tune with the needs of today’s customers
  • Ofgem found that customers of smaller energy suppliers were more confident that they were getting their provider’s cheapest deal, based on a 2019 survey
  • More competition leading to greater levels of tariff innovation and variety, and often lower prices.

What are the disadvantages of smaller energy suppliers?

  • Since many suppliers are new, it can be tricky to dig up information about them and establish confidence in them
  • Independent providers might struggle to cope with a sudden surge in new customer accounts
  • They may be slower to respond to high volumes of customer queries.

What happens if my energy supplier goes bust? 

One of the biggest worries for customers is whether small suppliers are as reliable as large suppliers. Or whether they’ll be protected if a provider goes bust.

There is an increasing number of smaller suppliers who have collapsed in the last three years, with another wave of smaller suppliers going bust during the recent energy pricing crisis. To reassure customers, Ofgem introduced safety measures to protect customers when this happens:

  • They’ll ensure customers’ energy supply and credit balance is protected if a supplier goes out of business. This means appointing a new provider on the customer’s behalf - known as a ‘supplier of last resort’ (SoLR).
  • They’ll make sure that customers aren’t financially worse-off with a SoLR.
  • They’ll vet any SoLR to be sure they can meet their obligations.
  • They’ll enable customers to either move on to a contract with the SoLR or switch to another supplier, with no cancellation fees. 

Taking regular meter readings yourself can also make things easier if your supplier goes bust, since this will minimise the chance that they owe you any money.

How often does a small energy provider go bust? 

It’s hard to say, as smaller energy providers tend to go bust in waves. This is because they’re usually affected worse during energy crises, as we’re seeing recently. However, since the start of 2018, and at the time of writing, 38 suppliers have gone bust, making that an average of almost 10 suppliers, per year, over the last four years. 

With a sharp rise in energy prices, smaller providers, who have offered cheaper fixed tariffs to their customers, are suddenly supplying energy at a large loss. Combine that with having less money in the bank, compared to the bigger suppliers, and they quickly go out of business. Because a lot of smaller energy suppliers work in the same way, they tend to go bust in waves.

Why are there more small energy suppliers nowadays? 

Before 2013, the big-name suppliers controlled almost 100% of the UK energy market. Energy regulator Ofgem then introduced Simpler, Clearer, Fairer reforms – to give alternative providers a fair shot at the market and to increase competition. 

Ofgem’s changes, and the government-backed Energy Switch Guarantee, have also made it much easier for consumers to switch. In fact, the latest figures from July 2021 show over a quarter (29%) of the total switches for gas and electricity were away from large suppliers, whose share of the market has fallen to around 70% (according to Ofgem data).

Are customers of small suppliers more satisfied? 

With fewer customers to deal with, smaller companies are tending to outperform suppliers according to recent polls. So, what do Ofgem figures say?

Customer satisfaction: 71% of customers overall said they were satisfied or very satisfied with their energy supplier in the second quarter of 2021, up from 69% earlier in the year. Smaller suppliers dropped a percentage point, medium suppliers rose 1%, while large suppliers saw the greatest improvement of 2% from the previous quarter. 

Customer complaints: overall complaints fell by 14.5% between the first and second quarter of 2021, down 55% compared to the second quarter of 2020 .

Complaints  to medium suppliers also saw a fall (7.9%) between the first and second quarter of 2021, but large suppliers saw complaints rise by 4.7%.

Ease of contacting supplier: A total 57% of customers surveyed with both smaller and big-name suppliers described the process as easy.

Is choosing a small energy company risky?

The main risk with using one of the smaller energy suppliers is that they’re perceived to be less reliable. 12  energy suppliers have gone bust in 2021 so far. Five energy suppliers failed in 2020, while nine energy suppliers collapsed in 2019, all of which were smaller and medium-sized suppliers. In 2018, 12 suppliers went out of business.

While there are certainly advantages to choosing a smaller company, there is a trend of energy suppliers collapsing. This has been put down to a combination of factors, including the energy price cap, lack of investment, the overheads involved in running an energy company, and, more recently, the pricing crisis which saw the cost of energy rise sharply in 2021.

The failures have led to a lack of customer confidence. However, Ofgem has reassured customers that your supply will not be disrupted, with customers of collapsed providers transitioning to a new company automatically.

Are small energy suppliers reliable?

It depends what you mean by reliable. The belief that smaller providers are at greater risk of collapsing has been borne out by evidence in the last few years, with 38  suppliers ceasing to operate since the start of 2018, with that figure expected to grow before the end of 2021.

However, customers tend to think of the smaller energy suppliers as having better customer experience and complaint handling, offering a better overall service. If this is just as important to you as simply saving money, it’s worth considering a switch.

How are new energy suppliers regulated?

In June 2019, Ofgem introduced more stringent checks for any new suppliers wanting to enter the market, which will hopefully slow the rate of supplier failures, by requiring would-be-providers to demonstrate that they can pass a fit and proper test.

The new regulations should help improve standards and keep the energy market fresh and competitive. And that will, hopefully, boost consumer trust in all energy providers.