Smaller rivals turn up the heat on energy’s ‘Big Six’

“The system is set up to favour the big players. But we still manage to compete on price and customer service.”

It’s a miracle that they do, since life is tough for smaller suppliers of gas and electricity, who jostle for space in about 5pc of the market against the “Big Six” - British Gas, Scottish & Southern (SSE), E.ON, EDF, Scottish Power and npower.

Small players have routinely found it difficult to buy enough energy in advance and struggle with credit.

And many people have never heard of Ovo, Good Energy, Utility Warehouse, Ecotricity and the others. But could this time of rising prices and disillusion with the giants provide an opportunity for small suppliers to shine?

While British Gas, SSE, Scottish Power and E.ON have all said they would lift gas prices by 18pc to 20pc and electricity prices by 10pc to 16pc this summer, many of the smaller suppliers are holding out against rises for as long as possible.

The companies that raised prices have blamed tensions in the Middle East for limiting gas supply and Japan’s earthquake for increasing gas demand.

But those who are not raising bills point out that although wholesale gas and power costs are higher than expected this summer, prices on the spot and forward markets have fallen since June and hit a low for the year last week.

Good Energy, a green supplier, has in the past been at the more expensive end of the market. However, it has not raised its electricity prices for three years and now finds it can boast an average bill cheaper than British Gas’s standard tariff.

Last week, it raised gas prices by just 9.4pc and said electricity would stay the same until at least 2012.

“The smaller players are getting a bit more confident in their ability to buy forward,” says Juliet Davenport, founder of Good Energy.

She also believes the company’s pledge to supply energy from only wind and other renewable sources has helped keep prices stable, since it is not exposed to volatile gas prices in the same way as its competitors.

Politics is also on the side of the minnows. Chris Huhne, the Energy Secretary, has promised to help new entrants challenge the six dominant players and Ofgem is preparing to sweep away hundreds of complex tariffs, allowing consumers to compare rates charged by their supplier more easily.

Consumers frequently complain in surveys that they are bamboozled by the 400 confusing tariffs currently available.

So small suppliers from Ebico to Co-op Energy have taken advantage of this by offering one simple rate that is cheaper than the standard offerings of most of the Big Six.

The smaller companies can rarely claim to be the very cheapest in the market because of cut-price online fixed deals offered by the Big Six, but not widely taken up.

This is because three-quarters of British households are paying the most basic “standard tariffs”, often provided by the incumbent company that used to have a supply monopoly on their area.

Experts point out that this is a way of getting the unengaged, complacent customer to pay the price for more savvy customers, who pose a greater risk of switching to another company.

However, the expensive standard tariffs are not hard to undercut. Co-op Energy, for example, launched in May with a single dual-fuel tariff that is £196 per year cheaper than British Gas’s standard offering, has no penalties for switching supplier and the option of paper bills.

“I think the market has ended up in the position where you have some consumers subsidising others and the majority are losing out against a few people who are very active managers of their bills, always switching,” says Ramsay Dunning, chief executive of Co-op Energy.

“Our customers won’t feel like that’s happening to them because we just have one simple tariff for everyone and we have no immediate plans to increase prices.”

Meanwhile, the most consistently cheap small supplier has been two-year-old Ovo Energy, run by former JP Morgan banker Stephen Fitzpatrick.

Its business model is simple – offering a small number of annual fixed-rate tariffs and increasing prices only for new customers when necessary. It is £168 per year less than British Gas’s standard tariff, making it cheaper even if it had to be cancelled with a £60 charge.

“The increasing trend over the last six to eight months is that the Big Six were really heavily subsidising online tariffs at artificially low prices. With large increases to standard tariffs, it’s more and more difficult for them to justify having the really cheap ones on the market,” he says. Convinced that the Big Six are “charging more than they need to”, he is also sceptical about the need for price rises right now.

“Wholesale gas prices for the next 12 months have been unchanged since March,” he says. “We’ve had our price the same since then and we see no reason for it to go up at the moment.”