Should you switch to a small energy company?

As yet more go bust, do cheaper energy prices outweigh the risk of a smaller energy company going under?

I’m always encouraging you to compare energy prices and switch if you can find a better deal. You can potentially save hundreds of pounds every year doing this. It will take you just 10 minutes when using a comparison site. Easy money.

And a huge number of people are doing it, with nearly 3 million customers moving electricity suppliers for cheaper bills in the first half of 2021. Around two-thirds of switches were to small or medium suppliers, away from larger provides (classified as Bulb, British Gas, EDF, E.On/NPower, Octopus, Ovo/SSE and Scottish Power).

So if not one of these well-known energy companies, who? When you go through a comparison site you’ll usually spot that the lowest prices are usually with a company you’ve never heard of. There are now dozens and dozens of new companies to pick from.

So should you pick one? Understandably there’s concern about moving to a provider you know nothing about – particularly with a number of them collapsing.

So does that mean you should just stick with the devil you know?

There’s no difference to your power supply or use

A lot of the reluctance is down to worry about the quality of the gas and electricity you’ll get. Well, you can relax, as there’s no difference to what comes through the pipes and wires.

Even if you sign up for green energy, it doesn’t suddenly mean you are using renewable energy. It’s exactly the same whoever you pay.  Which means you won’t suddenly experience power blackouts, or find the fuel less efficient.

But customer service does change

All that actually changes when you switch supplier is who bills you and the customer service you receive. So for most it just means your direct debit goes to a different company. So you won’t really notice anything.

Of course, when something does go wrong it does help to know you can get through on the phone, or that complaints are dealt with quickly and efficiently. And bad service isn’t exclusive to new providers. It would be hard to find worse than my nightmare experiences with NPower’s customer service.

So, even though the price is likely the leading factor when choosing to switch, you might decide to pay a little bit more for a provider with good feedback.

You can check out customer reviews on Money Saving Expert’s switching service (which is my pick of the comparison sites), while Which? magazine has ranked the best providers against the worst.

What happens if your energy supplier goes bust?

Sadly, it seems every month or so one of the smaller energy companies goes bust. We’ve seen four collapse in the last month (*update 22 September – make that seven), and maybe more to come. That’s on top of 15 or so that have gone under in the last 12 months.

This is where the second major worry comes in. What happens if your energy supplier shuts down?

First, you won’t be cut off. You’ll still get the same power supply. The energy regulator Ofgem will switch all the customers to another provider who’ll then start billing you. Since your bills could well rise as a result you are free to then choose to switch to another company.

It’s advised not to try and switch before the new provider has been found as it could mess up the transition. And don’t cancel your Direct Debits either until you’re set up with the replacement company. Once that’s all sorted you can compare and look for a new energy company.

If you do have any credit built up then you won’t lose this, though it might take a while for you to get that money back. More likely it’ll be deducted from your future bills.

You’ll also lose any cheap fixed deal you were on when you are moved, so prices will most likely increase, though that does depend on which company takes you on.

Are smaller energy companies always cheaper than the big providers

There’s usually a huge amount of competition, and despite the massive hikes on the way, the larger companies can still offer decent rates.

The only way to know what’s best for you is to head to a comparison website and search. It’s well worth doing.

Doesn’t the energy cap mean you don’t need to switch?

No, you can still save on your bills by doing a full comparison and finding the lowest rate.

What’s more, the energy price cap changes every six months, and it’s set to jump up by £139 in October 2021. It’s likely everyone on variable tariffs will see their prices jump up when that comes into force.

So should you go for a large or small energy company?

Andy’s analysis

In a ‘normal’ year I’d say not to worry too much, but things are particularly tough for smaller energy companies right now. If you choose one of the smaller companies you do need to have one eye open to the fact there’s a real risk they could close down.

The massive wholesale price hikes we’ve seen in 2021 would normally have been passed on straight away to customers. However with many energy companies already charging close to the price cap, they have to wait until this changes every six months to actually change prices.

And this has resulted in some smaller companies being unable to carry on. This could well continue over the coming months, so just bear this in mind.

You might feel that now is a good time to pay a little bit extra for the (presumed) certainty of a larger company. Indeed, it’s likely to be the case right now that there will be very little difference in price as those smaller companies can’t afford to charge less at the moment.

How to switch your energy

I’ve written extensively about the ways you can switch energy. It’s really easy and should take you less than 20 minutes (I can do it un under 10 minutes!).

3 thoughts on “Should you switch to a small energy company?

  1. Hi Andy. My supplier has gone bust. I use a high amount of gas so does it mean that the cap will not really benefit from the cap as I’m moved to new supplier on a SVR ?

  2. Switching bank accounts.

    You mention M&S Bank in this article as a bank to swith to that isn’t giving any bonus incentive to do so.

    M&S closed all their bank accounts on 31st August this year.

    1. I’m not sure which article you’re referring to but it would have been written well before the accounts were closed


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