Next Day Switching; the Perfect Storm?

Andrew Hancock

04 Jul 2019

Tilix are delighted to repost articles (with permission) from our associates. This is a remix of Next Day Switching; the Perfect Storm? from Andrew Hancock.

The business case for the multi-million pound Switching Programme is that it will benefit for consumers who can switch the next day, rather than the current 21 days, thus “saving” 20 days of what is assumed to be a higher price for their energy. In recent times, energy prices have been increasing, making the only potential winners those consumers who switch from a Standard Variable Tariff (SVT); who have historically been resistant to switching.

But will this really benefit consumers, especially as its objectives appear to be at odds with both the intention and function of the marketplace?

Is it worth the risk? An improved switching process is something that is long overdue. However, in an industry which has a poor track record for implementing change, Next Day Switching seems to have the odds stacked heavily against it. Even broadband, mobile phone contracts, bank accounts and TV service subscriptions require more notice to successfully switch a consumer contract to a competitor.

The very nature of electricity; that it is delivered instantaneously, means that a supplier’s wholesale purchase of energy is required to be balanced against what a customer is expected to use. Any variances are cashed out back to the supplier in what can be quite punitive charges for any energy imbalance. It is clearly cheaper to buy wholesale energy far in advance for an energy supplier than within day. These savings can be passed on to the customer. In a system where hundreds of thousands of customers can be transferred overnight, a supplier could find themselves very short of power (or indeed with far too much energy purchased) the next morning. This will increase risk and volatility further.

Adding complexity… In readiness for Next Day Switching, third party service companies are racing to exploit what may well be a very lucrative market. Consolidation of prices into phone apps and/or services which switch a customer on a daily basis to the cheapest available tariff sounds like a dream for consumers…….or is it?

For the suppliers the Next Day Switching programme will impose compensation payments for switches that go wrong or are delayed, adding further complexity and risk, whilst third party service companies responsible for switching and customer acquisition race to amend their contracts with suppliers to protect their own commercial positions.

‘Next Day Switching’ will be envisaged by the Regulator as a service that will increase competition by encouraging suppliers to compete further on price. High volume switching using immature processes, systems promoted by unregulated third parties seems like a highly risky step for any market.

Common sense in complexity Increased risk, no customer loyalty and a race to the bottom on prices backed by third parties and technology companies who are likely to become the real winners, does not necessarily sound like a sustainable future for clean, green energy, that can be accessed by all. Energy is the same product no matter who the supplier.

The current view is that a customer may stay with their energy supplier, because their customer service is better than others, therefore incentivising suppliers to improve these areas of their business.

Introduction of Next Day Switching may just remove this incentive and create a perfect storm.