As two smaller energy suppliers went bust in a single day on Wednesday 22 September, fears of a gas crisis disproportionately affecting small independent energy companies are gaining traction.
Avro Energy and Green Supplier Limited were the latest energy companies forced to cease trading amid spiking wholesale gas costs in the UK.
The biggest UK suppliers, known as the Big Six, are the most likely companies to survive.
But who are the Big Six and how does the controversial energy price cap impact the UK’s larger energy suppliers?
Here’s what you need to know.
Who are the UK’s Big Six energy suppliers?
The Big Six energy companies are a set of six gas and electricity suppliers which dominate the UK energy market, and have done for some time.
The companies traditionally in the Big Six were:
- British Gas
- EDF Energy
British Gas accounts for a quarter of the UK energy market share followed by E.On, Ovo, EDF and Scottish Power.
The once small energy firm Ovo completed an acquisition of SSE to become one of the UK’s ‘Big 6’ in 2020, buying the Perth-based energy supplier for £500 million.
This followed German company E.On’s acquisition of energy parent company Innogy – which owned Npower – in November 2019 after Npower shedded 261,000 customers in the third quarter that year.
The merger of the two companies has since seen the ‘big six’ revised down to the ‘big five’ by market observers.
Which is the largest company in the Big Six?
The largest Big Six company has traditionally been British Gas, which was created as a private public limited company in 1986 following former UK Prime Minister Margaret Thatcher’s sweeping privatisation of several public-owned industries.
It was founded as the Gas Light and Coke Company (GLCC) in 1812 before becoming British Gas in 1973.
In 1997 energy conglomerate Centrica became British Gas’ parent company.
British Gas announced in February 2021 that it had seen its customer base fall by 2% to 6.9 million customers in 2020, however, in facing more sizeable competition from smaller energy companies.
The firm has so far been appointed by Ofgem to take on the customers of four energy suppliers which went bust due to rising energy costs in 2021.
What is the energy price cap and how does it affect the Big Six?
Introduced by the UK Government in 2019 and regulated by energy regulator Ofgem, the energy price cap places a limit on how much suppliers can charge UK households on default tariffs.
The price cap regulates the cost of energy units and is supposed to ensure that customers do not pay excessive amounts for their gas or electricity – or are not vulnerable to competitive behaviour of dominant market players.
It is reviewed by regulator Ofgem every six months based on a set of rules.
It was announced in August 2021 that rising wholesale gas and electricity prices would lead to an increase in the energy price cap from 1 October.
Some of the larger UK energy suppliers announced they would be increasing their standard tariff costs for customers in response to the energy price cap rise.
EDF and British Gas both said they would be issuing a 12% price rise on standard variable tariffs to come into effect on 1 October 2021.
But British Gas later announced that it would be delaying its 12% increase until next year in order to help customers cope with a difficult winter ahead.
"We understand that the Price Cap increase comes at a very expensive time of year for some of our customers,” British Gas said.
"The furlough scheme which has helped millions of people is coming to an end, parents are getting children ready for a new school term, and Christmas is on the horizon.
"Freezing direct debit payments until after winter will keep an extra £50 in customers pockets.
"We want to give our direct debit customers the option to create a bit of extra financial breathing space if they need it.”
The latest record increases in wholesale gas prices – by 70% in August alone – mean that larger and smaller energy firms alike are feeling the heat of challenging market conditions.
UK Business Secretary Kwasi Kwarteng has said that the energy price cap will remain in place to protect UK households, but experts warn that rising costs could possibly see a 14% price cap hike from April 2022.
Cornwall Insight senior consultant Dr Craig Lowrey said:
"Although the winter 2021-22 cap was a new record (£1,277 for a typical dual fuel direct debit customer), Cornwall Insight modelling indicates that - given the extent of the increases in the wholesale market and the manner in which the cap is set - this is set to be surpassed by that for summer 2022."
He added: "We would need to see a material and sustained reduction in the wholesale market to avoid the kind of cap levels we are predicting for the period."
Additional reporting by PA City Reporter August Graham