New entrants to the water retail sector have grown their market share by 50% over the past year but still account for just 5.5% of connections while incumbents maintain the lion’s share.
Reflecting on the first five years of the non-household water market opening to competition, Ofwat said those retailers that acquired a customer base from previous monopolies account for 94% of connection points, 92% of consumption and 91.6% of revenue.
Companies that have entered the market and grown organically without acquiring an established customer book from water companies grew their share of connections from 3.8% in 2020/21 to 5.5% in 2021/22.
In its Taking Stock review, the regulator showed the majority of the 1.2 million businesses and organisations with the option to change water supplier since 2017 have not done so. In the past year, just 9.9% of customers were active in the market. This was a rise from the previous year when 8.5% of organisations engaged.
The report showed larger businesses were more active, with 23.4% of customers that use more than 5 megalitres annually engaged in the past 12 months compared to just 9.8% of those using under 0.5 megalitres.
The cost of water has become a bigger priority for business customers over the past two years, rising from 29% in 2020 to 42% in 2022. This remains behind reliability of supply as the most pressing factor for business customers overall, with 55% rating this as their top consideration. The report highlighted a steep fall in interest in water efficiency over the same period from 25% to just 7% of customers stating it was an important factor to them.
Ofwat said the extent to which customers have opted to switch is unclear and said the “mixed picture” of switching levels continues in 2021/22. Big customers were “significantly” more inclined to re-negotiate compared to the rest of the market.
Most customers (77%) reported satisfaction with their current supplier, which is in line with previous years. Those that were not happy with their retailer attributed problems to billing issues, customer service and price.
Awareness of the market fluctuated, with a significant drop this year in the number of businesses that knew they had the chance to switch falling from 75% to 57% for larger organisations and from 69% to 54% for medium ones – a fall that Ofwat said had no clear driver.
Since the market opened it has been dogged by persistent frictions that Ofwat and the market operator MOSL together with wholesalers and retailers have worked to address, such as long unread meters, incomplete data, and complex, time-consuming interactions between wholesalers and retailers.
Ofwat called for stronger incentives for all trading parties to improve data quality across the market, stating that financial incentives can be useful to ensure compliance with their code and licence obligations. It praised work underway to address data quality issues and asked wholesalers and retailers to prioritise data quality improvement initiatives.