We recently published our 2023 Annual TPI report which provides an independent review and analysis of the market for TPIs, and the services provided by them. The report also looks at the current challenges and opportunities for TPIs, such as regulatory changes, competition with suppliers, and diversification of services. 2023 has seen a difficult operating environment for TPIs, due in part to wholesale market volatility, issues around securing contracts, and heightened business insolvency rates. Despite these headwinds, TPIs have provided crucial services to customers in a difficult market, leading to TPI penetration rates overall remaining broadly stable year-on-year.
In this blog, we explore the latest developments that we have covered in our 2023 Annual TPI report which highlight future challenges for TPIs amidst regulatory changes and supplier competition, as well as the potential opportunities of these through diversification of services and collaborations.
Increased regulation drives concerns for TPIs
Since its Microbusiness Strategic Review (MSR) in 2022, Ofgem has placed increasing interest in the non-domestic market. It launched a review of the non-domestic market in February 2023, and recently published its statutory consultation in December 2023. There are several key themes from this work, mostly focussed around expanding existing measures, many of which were brought in under the MSR, to a wider group of business customers. These include:
- Expanding the availability of Alternative Dispute Resolution (ADR) schemes to “small business customers”, which will cover 99% of all businesses.
- Expanding TPI “service fee” (commission) transparency to all non-domestic consumers.
- Asking government to consider direct regulation of TPIs.
The costs associated with the ADR scheme has added increased financial pressures to smaller brokerages already struggling in the current market. As a result, we may see some market consolidation as these smaller TPIs look to aggregate with larger TPIs.
TPIs look to diversify their energy service offerings
Amidst continued market volatility concerns, suppliers have looked to diversify their sales channels through a combination of in-house development, partnerships, mergers and acquisition. In doing so, they have essentially minimised the need for the role of a third party in customer acquisitions and renewals. As a result, we have seen TPIs seek alternative revenue opportunities such as water procurement, telecoms, broadband, and more recently, bill validation and compliance.
There is an opportunity for TPIs to broaden their energy service delivery as there is increased pressure on I&C customers to decarbonise their operations. Further, the future of regulation for SMEs in minimum energy efficiency standards and low carbon heating in the non-domestic sector is relatively unclear, presenting an opportunity for TPIs in this space to lead the transition to green energy. Further, TPIs can help customers understand mandatory reporting of emissions which underpin matters such as energy audits and subsequent investment decisions. Conversely, those who perhaps do not have the skill or resources to adapt and diversify in this way, may find it difficult to retain and gain new customers.
Future outlook
Looking forward, we may expect to see greater consolidation of the TPI market as increased regulation and greater competition with suppliers leave smaller TPIs unable to adapt and compete. This will be good news for the larger TPIs however, who may look to acquire these smaller brokerages and use their resources and financial positioning to diversify their own energy services and partner with suppliers to aid both SME and I&C businesses in their net zero transition.
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