Just three energy firms will supply 74% of British homes after Eon-Ovo merger: Will it drive up bills?

Energy firm's Eon's takeover of rival Ovo Energy means that just three businesses will now supply power to 74 per cent slice of British homes, analysis suggests.

Ovo customers will be moved to Eon after a takeover deal received the green light from the competition watchdog last week, though it has not yet completed. 

When it does, British Gas, Eon and Octopus Energy will control the vast majority of the household energy market according to energy consultancy Cornwall Insight said. 

It is a far cry from before the 2021 energy crisis, when there were around 50 suppliers in the market. As of this year, there are 17. 

Tom Goswell, energy supply lead at Cornwall Insight, said: 'The big six have become the big three, and there have been questions raised over how this will impact household choice and the health of the market.'

Eon will become the second largest domestic energy supplier in the UK following the deal, controlling 25 per cent of household electric and gas accounts. 

Octopus has a 26 per cent share, with British Gas at 23 per cent. 

Once the Eon-Ovo deal completes, the main five energy suppliers, namely Octopus, British Gas, Eon, EDF and Scottish Power, will control 90 per cent of the UK's domestic energy market.

How the UK energy market will look after the Eon-Ovo deal completes 

Concerns over higher bills

During the energy crisis which followed Russia's invasion of Ukraine, some smaller players collapsed because wholesale gas prices surged so high that their business models became unsustainable. 

Their customers were transferred to larger energy firms as part of rescue deals.  

Goswell says: 'Since 2020, high wholesale prices have pushed many smaller suppliers out of the market, and those same high prices alongside the price cap, have kept switching well below pre-2020 levels.

'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.'

With fewer big firms jostling for customers, the concern is that prices could go up in the long run, even if shorter-term more attractive deals are offered initially by the combined Eon-Ovo duo. 

However, Goswell adds that there are also benefits to having fewer, larger energy firms.  

'Larger suppliers do bring with them a degree of stability, and after around 30 firms dropped out of the market, leaving customers wondering who would be sending their next bill, stability is not something to dismiss lightly. 

'They also have the scale to invest in tariffs smaller companies often struggle to offer, such as deals built around electric cars or cheaper power at off-peak times.'

'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.'

No details of potential future tariff price increases or reductions by Eon or Ovo have been published. 

Those interested in switching energy supplier can find today's best deals using This is Money's regularly updated guide.  

What do Eon and Ovo customers need to do now?

We do not know exactly when Eon's takeover of Ovo will complete, but it is likely to be later this year. 

For now, customers with both firms do not need to do anything. The two energy firms will continue to operate as two separate businesses. 

There will be no changes to any of your services, payments, including direct debits, or how you contact each provider in the immediate future. 

There should be no interruption to your energy supply as the deal completes and credit balances will remain protected. 

Customers will see their energy tariff stay the same and all existing tariffs will be honoured throughout the takeover. 

If you are on a fixed deal now, it will remain in effect until the end of its agreed term. And anyone getting a Warm Home Discount will continue to receive it. Customers can also still switch to a different provider if they want to. 

Eon and Ovo said it would contact customers 'in advance' if any changes to their bills were being made.  

Energy bills keep on rising  

Households who are not on fixed energy tariffs face the highest energy charges in three years from this month, after rising market prices pushed up the Ofgem price cap.

Gas and electricity prices have been increased by 4 per cent from October 1, after rising 13 per cent at the start of July to take account of global energy market price rises caused by the war in the Middle East.

The current energy price cap takes an annual bill to £1,723 for the typical household using both electricity and gas and paying by direct debit. The cap is calculated per unit of energy used, so if you use more energy than average you will pay more. 

Energy prices could also be set to increase sharply in January, with a typical annual bill forecast to jump by £276.  

According to Cornwall Insight, the quarterly domestic energy price cap is forecast to rise by about 16 per cent in January, as the war in the Middle East continues to keep wholesale energy prices high.

Cornwall Insight said it expected Ofgem's price cap to increase in January 2027 to £1,999 a ⁠year for typical use, up £276 from £1,723 in October 2026, which would be the highest level since March 2023.

Wholesale energy prices are the largest factor contributing to energy regulator Ofgem's domestic price cap, which is set on a quarterly ⁠basis using a formula that also reflects suppliers' network costs and environmental and social levies.