Big Six? Top Nine!
The UK energy market is getting more diverse… and that’s official.
Change is in the air this autumn, according to the latest government report on the energy sector. Although the average business customer is unlikely to feel the benefits directly, they can bask in secondhand warmth radiating from the domestic market.
The Department for Business, Energy, and Industrial Strategy’s monthly energy survey is one of those documents which might as well have ‘Wonks Only’ embossed on the front cover. It’s the size of a smallish paperback and packed with statistical tables and dense arguments referencing entities like nominated flows and Herfindahl-Hirschman indices, whatever they are.
But the ‘special features’ sections have often contained a nugget or two. One of those features makes the latest edition unusually appealing. Titled ‘Competition in UK electricity markets‘, it highlights recent growth in the UK’s complement of electricity suppliers, and corresponding falls in the market share of the ‘Big Six’.
The Long View
Good news? Probably. The government economists who authored the survey are a cautious lot who like to take the long view, tempering upbeat headline figures with more ambivalent supporting data. That skepticism is signalled by their refusal of the populist term ‘Big Six’. (‘Top Nine’ is more accurate, but just doesn’t have the same ring, somehow.) They also remind us that the UK already had 16 different electricity suppliers before liberalization.
Of course, only one of those companies was active in the domestic subsector, so the popular account of the Thatcher-Lawson reforms breaking up a state-owned monopoly remains effectively true. But we need to remember that business consumers have reason to be cynical about the alleged dynamism of the free market. They’ve experienced decades of inertia, and lived through the spate of closures and mergers which consolidated the grip of the established players back in the noughties.
It’s therefore cheering to see the wonks apply an objective test of diversity and give a ‘thumbs up’. The measure they use is the aforementioned Herfindahl index, defined by Wikipedia as an indication of “the size of firms in relation to the industry and […] the amount of competition among them.” A low Herfindahl index is reckoned to be a Good Thing in much the same way as a blood test showing low levels of LDL cholesterol. The UK energy sector’s Herfindahl score has been declining since 2010. Hurrah! It’s now down to 1999 levels, and shows every sign of falling further in the near future.
We’d like to think that these positive developments can be traced to the rise of renewables and the emergence of new business models. ‘Big Six’? ‘Top Nine’? Whatever you call them, their slice of the pie is 10 percent smaller, and that share is going to fresh-faced competitors. Most of the innovations are being made in the domestic subsector, granted… but, in the long run, we’ll all benefit.
Here at Planet9 Energy, we help our customers deal with the changes taking place across energy markets in the UK and Europe. Give us a ring to learn more.