The Big Six energy firms could lose a quarter of their customers by 2020, according to a report that says householders are increasingly switching to smaller utility companies.
It said consumers were “voting with their feet” to opt for new energy firms, in a move that will be welcomed by politicians who have long called for the energy market to be opened up to further competition.
The analysis by Citigroup will come as a blow to the Big Six firms – including ScottishPower and Perth-based SSE – which have come under increasing criticism for hiking prices at the same time as their profits are going up.
The major players have also been accused of providing confusing billing and tariff structures.
The report, UK Energy Policy – Unwinding the Big 6, also predicted that the average duel fuel bill could be 20 per cent higher by 2020, driven up by inflation, increased infrastructure costs and government green policies.
Last year, Labour leader Ed Miliband pledged to freeze gas and electricity prices for homes and businesses for 20 months if his party won next year’s general election.
Citigroup suggested the big companies were not suited to facing the “structural shifts” happening in the energy industry.
“In our view, the large integrated utilities may not be best placed to deliver these changes and we believe that politicians and policy makers may share this view,” its report said.
“As a result, we believe there will be a reversal of previous industry consolidation over the coming years.”
Citigroup warned that three of the main players – Centrica, SSE and E.ON – had historically not seen customer service as a “key focus” and that all six would need to separate out their supply businesses and improve customer service if they were to retain even the predicted lower number of customers.
“The UK energy supply market has become increasingly competitive in the last year due partly to the fallout from the Labour Party’s proposed price freeze announcement late last year and increasing publicity for the industry,” the report said.
“As a result, the number of customers switching suppliers increased dramatically in the fourth quarter 2013/first quarter of 2014, but the rate of switching has fallen back towards historical levels in recent months.”
Consumer groups and political parties have long argued that the Big Six need to be put under pressure from smaller providers, such as Ovo Energy, which offers some of the cheapest deals on the market and has doubled its customer base to 350,000 in the past six months.
They also want to make it easier for consumers to find out which company can offer them the best deals.
The Big Six are facing an investigation by the Competition and Markets Authority, which is expected to lead to the biggest shake-up yet of the sector.
Ann Robinson, of uSwitch.com, said: “This report is a wake-up call to the Big Six. Consumers are voting with their feet and choosing suppliers who offer competitive prices and good customer service.”