E.ON-OVO Merger Shrinks UK Energy Market to Three Major Suppliers
Analysis suggests the E.ON acquisition of Ovo Energy will concentrate 74% of British homes under three providers, raising questions about competition and future pricing.
The UK's household energy market is set to become more consolidated following E.ON's planned takeover of rival Ovo Energy. Once the deal is finalized, E.ON, British Gas, and Octopus Energy will collectively supply power to approximately 74% of British homes, according to analysis by energy consultancy Cornwall Insight.
This consolidation marks a significant shift from the market landscape prior to the 2021 energy crisis, which saw around 50 suppliers. As of this year, that number has dwindled to 17. With the E.ON-Ovo merger, E.ON will become the second-largest domestic energy supplier in the UK, managing 25% of household electricity and gas accounts. Octopus Energy currently holds a 26% share, while British Gas has 23%.
When the E.ON-Ovo deal is completed, the five largest energy suppliers in the UK—Octopus, British Gas, E.ON, EDF, and Scottish Power—will control 90% of the domestic energy market.
Concerns Over Pricing and Competition
The energy crisis, exacerbated by Russia's invasion of Ukraine, led to the collapse of numerous smaller energy firms as wholesale gas prices surged beyond their business models' sustainability. Customers of these failed companies were subsequently transferred to larger providers.
Tom Goswell, energy supply lead at Cornwall Insight, noted that high wholesale prices and the price cap have kept customer switching rates below pre-2020 levels. He expressed concern that with fewer suppliers, the competitive pressure to offer lower prices and innovative tariffs may diminish. "The concern with fewer suppliers is that the pressure to compete eases off, taking with it some of the incentive to keep prices low and offer something different," Goswell stated.
While this consolidation could lead to increased prices in the long term, Goswell also acknowledged potential benefits. Larger firms can provide greater stability, a crucial factor for customers who experienced uncertainty with the numerous supplier failures. Additionally, these larger companies possess the scale to invest in specialized tariffs, such as those designed for electric vehicles or offering off-peak electricity rates, which smaller firms often struggle to implement.
"The big suppliers have the resources to give people real choice, and the test over the next few years will be whether households who shop around find a genuine range of deals waiting for them rather than three versions of the same thing," Goswell added.
No specific details regarding potential future price adjustments by the merged E.ON-Ovo entity have been released.
What E.ON and Ovo Customers Need to Know
The E.ON-Ovo takeover is expected to be finalized later this year. Until then, customers of both companies are advised that no immediate action is required. E.ON and Ovo will continue to operate as separate entities, with no changes to services, payments, direct debits, or customer contact methods.
Customers can expect uninterrupted energy supply during the transition, and existing credit balances will remain protected. Tariffs will stay the same, and all existing fixed deals will be honored until their agreed-upon end dates. Recipients of the Warm Home Discount will continue to receive it. Customers also retain the option to switch to a different provider if they choose.
E.ON and Ovo have stated they will inform customers in advance of any changes affecting their bills.
Recent Energy Price Cap Increases
Households not on fixed tariffs are currently facing the highest energy charges in three years. From October 1, the Ofgem price cap increased by 4%, following a 13% rise in July, reflecting global market price increases influenced by geopolitical events.
The current price cap sets the typical household's annual gas and electricity bill at £1,723 for those paying by direct debit. This cap is calculated per unit of energy used, meaning higher consumption results in higher bills.
Forecasts suggest a further sharp increase in energy prices in January, with the typical annual bill potentially rising by £276. Cornwall Insight predicts a roughly 16% increase in the quarterly domestic energy price cap in January, driven by sustained high wholesale energy prices. The consultancy anticipates the price cap could reach £1,999 per year for typical use by January 2027, the highest level since March 2023.