Competition in electricity `to halve the number of suppliers'

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The Independent Online
MORE than half of the country's electricity suppliers could disappear once the domestic market is opened to competition from this autumn, a report predicts today.

The study says the market could fall from 15 players at present to between four and seven as a result of mergers and acquisitions or some existing players withdrawing altogether.

Coopers & Lybrand, which carried out the study based on a survey of top directors in each of the companies, says that the reduction in suppliers will take place over six years with most of the consolidation taking place in the first two or three.

The Government has already proposed splitting up electricity supply and distribution into separate operations in a move which could herald a wave of mergers among supply businesses. The industry has, however, rejected proposals put forward by the electricity regulator Professor Stephen Littlechild, calling for the ownership of supply and distribution to be separated.

The two companies expected to compete most aggressively in the deregulated market are Scottish Power and Eastern - both are in the first wave of competition and both have set themselves up as multi-utilities.

British Gas is perceived to be the biggest external threat to the industry. Centrica, which trades under the British Gas name, is offering electricity customers up to 15 per cent off their bills.

The report says that many of the supply companies will become unprofitable if they lose more than 15 per cent of their customers. Taken together, the 15 companies expect to increase their markets by 50 per cent but customer growth is only forecast at 2 per cent.

The key to success in the deregulated market will be the ability to offer a bundle of different utilities. Although three of the existing electricity suppliers - Scottish Power, United Utilities and Hyder - also own water companies, the study says water and electricity is the least likely mix of offers.

The products most likely to be marketed alongside electricity are gas, home contracting and home security, banking, insurance and telecoms.