Although npower has picked up IE's customers for the bargain price of GBP10 million, it will find itself challenged from all sides by suppliers keen for a slice of this market segment. Unless it improves the value of its offering, it will find customers who were happy to switch to Independent will now be happy to switch away.
The fall from grace of the former stock market darling has left the sub-100kW electricity supply market in a state of confusion. At its peak, Independent Energy was signing a third of all sub-100kW switchers and had built up a customer base to challenge even the largest incumbent PESs (Public Electricity Suppliers). Now Independent has folded, npower has picked up the pieces for the bargain price of GBP10 million. Not only does it get 240,000 electricity and 80,000 gas customers, but also the opportunity to acquire some of Independent's 2.8 TWh worth of larger industrial and commercial business, if they can be persuaded to accept npower's new tariff. However, npower can recover the money it has spent on the acquisition with the commission on collecting Independent Energy's debts, so the customer base effectively comes as a bonus.
While npower has committed to continue supplying these customers on their original terms and prices, it will eventually want to bring them into line with its own customers. It is therefore likely that many customers will then start switching away to the cheapest supplier again, either using their own experience or via the influence of their energy brokers.
There is no shortage of competitors to switch to. Despite their initial ambivalence towards the SME market, several PESs have recently shown more customer-friendly moves. ScottishPower, in partnership with the Royal Bank of Scotland, has set up 'Work24'; a web portal aimed at SMEs. 'Work24' offers small business eCommerce solutions along with most of the facilities that brokers offer, such as business travel and energy supply. Powergen has reorganized its sales and marketing functions, and has a new division focusing on this specific segment of the market. In addition, there are independent suppliers offering competitive prices for this segment of the market. These are principally Enron Direct, which has grown explosively since the beginning of 2000, and is in a prime position to take over Independent Energy's mantle as the largest independent supplier, and Electricity Direct, which could also benefit from the Independent Energy fallout.
npower is in a prime position, as the largest sub-100kW supplier by volume now that Independent's market share has been added to its own. However, its current product offering needs to be modified to retain the customers it has acquired. The vast majority of them will be the highly price-sensitive large or multi-site customers which have already demonstrated their willingness to switch for price savings. npower does not currently offer the keenest prices for SMEs or the brokers who control them.