Recommendation 8

In the decade after it was opened to competition, the UK energy supplier market consisted of six large energy companies and a similar number of smaller suppliers. Since 2010, smaller companies have entered the domestic energy supplier market in greater numbers.11 Ofgem told us that a small number of energy suppliers took advantage of customer loyalty to generate profits of up to 8%, equivalent to nearly £250 on top of the cost of energy. In 2016 it had therefore decided to prioritise opening up the energy market to new suppliers, in order to increase competition. We noted that there was a consensus between Ofgem and the Department about the need to increase competition in the market, but questioned the Department as to whether it should have foreseen the consequences. The Department told us that there was ultimately a trade-off between maximising levels of competition, and ensuring maximal resilience, and that managing the trade-off for the benefit of customers was the role of Ofgem. It also told us that, while hindsight suggested that the balance between competition and resilience should have been set in a different place, in its view the decision to create competition in the market was right.12