The market share of the big six has dropped to a “new low” as a quarter of customers have now switched to small and medium-sized suppliers, according to Ofgem.
The regulator’s latest State of the Energy Market report found the annual profits of the six largest suppliers fell for the first time since 2014 last year, to £900 million.
Competition is benefiting more energy customers but many, especially the vulnerable, are still getting a poor deal, the report suggested.
Dermot Nolan, chief executive at Ofgem, said: “We have witnessed many positive developments in energy over the last year, but the market is still not delivering good outcomes for all, especially the vulnerable.
“Ofgem has introduced the safeguard tariff which ensures that 5 million households, including some of the most vulnerable, pay a fairer price for their energy. Price protection will be extended to a further 11 million customers on the worst deals.
“We will continue to facilitate the transformation of the energy market to ensure that benefits are captured for all consumers and ensure no-one is left behind.”
In terms of customer service some small suppliers tend to outperform larger suppliers. Others however were found not to have invested in customer service resources as they grew, leading to a decline in standards.
Customer satisfaction with complaint handling has increased “significantly”, from 27 per cent in 2016 to 32 per cent in 2018. However, customers rarely take unresolved complaints to the Energy Ombudsman.
Matthew Vickers, chief executive at the Energy Ombudsman, said: “Suppliers have an obligation to signpost consumers to us, but we are concerned that this isn’t happening across the board – particularly amongst smaller suppliers.
“We believe poor signposting goes a long way to explain why such a small proportion of consumers currently bring unresolved complaints to us.
“Currently, we see evidence of effective signposting in only 10 per cent of complaints that reach us from customers of small suppliers.
“That is a real problem, especially at a time when small suppliers are gaining market share and more and more of the complaints we handle are about smaller suppliers.
“It would be unfair and misleading to suggest that all small suppliers are bad at signposting, but the evidence suggests that it is more of an issue at that end of the market.
“We would like to see clear, effective signposting across the industry and are working with suppliers to highlight concerns and make improvements.”
Furthermore, as of April this year, more than half (54 per cent) of households were still on a poor value default deal, compared to three in five (57 per cent) households in October last year.
Many customers in vulnerable circumstances continue to be most likely to be paying over the odds for their energy.
In 2018 41 per cent of respondents to the regulator’s latest annual Consumer Engagement Survey said they had engaged in the market to some degree, for example by switching.
But only 32 per cent of those living in rented social housing had engaged with the market, while 32 per cent of households used prepayment meters.
The report also found that one in five customers living in private rented housing are in fuel poverty, higher than any other type of households and almost twice the overall average.
Ofgem found that last year only 17 households had their electricity or gas disconnected, down from its peak of 8,300 a decade ago, and suppliers provided over 1.5 million “Priority Services Register” services (for example providing energy bills in braille) to vulnerable consumers, up by 25 per cent compared to 2016.
Average household energy consumption in 2017 continued to decline, falling by 5.5 per cent for gas and 3.3 per cent for electricity.
This, Ofgem says, is down in part to homes being better insulated and milder winters but may also be driven by customers turning off heating and lights to save money.
Next month the regulator will launch a call for evidence to find out more about self-disconnection, including whether suppliers are doing enough to help these customers.
In response to the report Lawrence Slade, chief executive of Energy UK, said: “Ofgem’s State of the Market report demonstrates how the energy sector continues to transition with increasing competition and engagement driving benefits for consumers, with switching up, complaints down and households spending less on average of their household budget on energy than last year.
“It is also welcome to see customer satisfaction with complaints handling increasing and the number of customers on standard tariffs continuing to fall.
“And the industry is proactively taking steps to go further with a number of voluntary initiatives to improve service for customers, including the Energy Switch Guarantee which provides customers with the reassurance that switching will be simple, speedy and safe.
“The independently-chaired Commission for Customers in Vulnerable Circumstances is also looking at how all stakeholders, including Government and industry, can improve services for those in most need.
“However with the proposed price cap posing a significant challenge for many suppliers it will be important to ensure it does not undermine the positive change within the energy sector and have any unintended consequences for customers.”
Energy and clean growth minister Claire Perry said: “We’re determined to protect vulnerable consumers when it comes to their energy costs. This report shows fewer households are on rip-off default tariffs as more people choose to switch suppliers, saving hundreds of pounds on their bills.
“But many customers, including the elderly and those on low incomes, are still paying too much which is why we’re introducing the energy price cap to protect over 11 million households from poor value deals this winter and further bring down the £1.4 billion a year that customers have been overpaying the big six.”
Pamela Taylor, independent chair of the Energy Switch Guarantee, said the report was “encouraging news”.
She added: “We know confidence in switching remains high with nine in 10 customers saying that they are happy with the process according to latest research from the Energy Switch Guarantee, an industry trust mark to provide consumers with confidence that switching is simple, speedy and safe.”