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Energy's next big challenge

Energy service providers look like a smarter play than the 'big six' providers as the sector continues to debate potential price caps
June 14, 2017

Energy companies became unwitting punching bags in the recent run-up to the general election, as both the major parties saw an opportunity to win favour with the public by promising energy price cuts, hitting back against the 'big six' groups that control 85 per cent of the UK retail electricity market and 83 per cent of the gas market. However, in recent years the UK energy markets have seen an increasing number of companies looking to provide both energy supply and wider energy services. And while our view on the London-listed members of the big six has cooled in recent months, there are still pockets of value among the smaller players.

The market can be split into those that buy energy at wholesale prices and sell it on at a mark-up - the suppliers - and those that provide services to either the purchasers of energy or the providers of energy. One example of these would be Smart Metering Systems (SMS), which installs smart meters on behalf of energy suppliers, helping them fulfil the government policy of offering every home and small business a meter by 2020.

The number of energy suppliers has risen sharply in the past decade, from 11 in 2007 to 52 at the end of 2016. Last year, an investigation by the Competition and Markets Authority (CMA) into the energy market claimed suppliers outside the 'big six' now held 13 per cent of the market in both gas and electricity, higher than at any point since the market was liberalised.

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