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Ian Peters: Competition and innovation in the energy sector

Good afternoon. Thank you very much for coming.

I’m Ian Peters - and I’m the Managing Director of Residential Energy at British Gas.

Thank you to Nigel for inviting me to speak at this event.

Our subject today is competition and innovation in the energy industry.

With Ofgem considering whether to refer the energy sector to the CMA, it is difficult to think of a time when the subject of this speech has more relevance.


Today I want to explore two key questions:

Is the energy industry competitive?

And does competition in the industry benefit customers?

On this latter point, Nigel has asked me to set out my thoughts on the impact of innovation in particular – and as it’s a subject close to my heart, I’m very happy to do so.

But before I get there, you may be aware that at the end of May we wrote to Ofgem saying that we welcomed a reference of the sector to the CMA. This wasn’t because we have any concerns about the level of effective competition in the sector. On the contrary, I believe that if we look at the facts, it’s very hard to argue that this is not a competitive industry.

In my part of the business - residential energy - that’s supplying gas and electricity to homes of course - I have 24 competitors.

I have the other 5 who make up the rest of the so called ‘big 6’.

There are 4 intermediate players who are now established as real competitive forces in the market – so much so they are starting to lose their exemptions from govt environmental and social schemes.

And then there are 15 other suppliers who measure their customer numbers in the tens of thousands.

These 24 all compete vigorously for my customers’ business.

Of course one of the measures of healthy competition - though not the only measure - is the ability to switch supplier.

In addition to the efforts of the 24 to woo my customers, the 11 accredited switching sites provide a simple ‘one stop shop’ for consumers - driving people to the company and a tariff that they feel is right for them.

Before the market was opened up, British Gas, by definition, was a monopoly - and had 100% of all gas supply customers in Britain.

Today, that figure stands at 38%. In itself, an indication that competition has worked in Britain.

And, of course, the 38% includes many customers who have financially benefited from competition by either switching away and returning or by switching tariff or payment method with us.

Conversely, at the time of its privatisation British Gas didn’t sell any electricity - the electricity firms had regional monopolies on that.

Today, 80% of our customers receive electricity as well as gas from us - and every single one of those electricity accounts were won in this competitive market. This is hardly surprising given most customers engage with the market on a dual fuel basis.

So we’ve won business from the former electricity suppliers, just as they’ve won gas business from us.

Overall, more than 90% of Britain’s energy consumers have had some kind of engagement with the privatised energy market - whether it’s through a different tariff, a new supplier or particular discounts.

It is true that switching numbers have fallen steadily till last year due to the withdrawal of doorstep sales, improved service and an end to deep discounting. However, since October last year, 2.37 million homes have switched supplier - that’s 10% of the market in seven months.

A very significant number in such a short period of time. Smaller suppliers took much of the benefit of this, in no small part due to the £70 advantage they enjoy through environmental and social levy exemptions. They now represent around 5% of the market, and continue to grow.

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