(Edits throughout)
* Small suppliers' discounts shrink as wholesale costs rise
* Switching to small suppliers at lowest since March 2015
* Npower gains 200,000 customers in July
* SSE slows customer losses to 50,000 in Q2
By Karolin Schaps
LONDON, Aug 25 (Reuters) - Britain's Big Six energysuppliers are starting to claw back customers from theirsmaller, independent rivals which are struggling to cope withmore than 20 per cent recovery in prices for winter since April.
The percentage of switchers moving from a large to a smallsupplier fell in June to the lowest since March 2015, accordingto industry group EnergyUK.
Several small suppliers, including Ovo Energy andCo-operative Energy, have now hiked their tarrifs to cover theirwholesale costs.
"Now that commodity prices have bounced back, the discountsmall suppliers can offer versus the Big Six has beenshrinking," said Roland Vetter, head of research at commodityinvestment firm CF Partners.
As energy prices tumbled by 20-30 percent in 2015, smallenergy suppliers which buy most of their customers' energy needsfor a shorter period, were able to slash tariffs.
Large suppliers typically hedge a few years ahead, lockingin prices over a longer period, meaning they can't cut averageprices as quickly.
As a result, customers rushed to find better-priced deals.In March 2016 a record 206,419 customers switched from a largeto a small supplier, EnergyUK data showed.
That trend has started to reverse.
RWE in July won more than 200,000 new British customers,returning its customer base to end-2015 levels. SSE, the UK'ssecond-biggest supplier reduced customers to 50,000 betweenMarch and June, from 90,000 lost over the same period last year.
By contrast, smaller supplier Ovo Energy has increased itsfixed-term tariff by 3.6 percent and Co-operative Energy haslifted one its 2-year fixed tariff by as much as 103 pounds,according to uswitch, a site that compares energy tariffs andtakes a commission payment from suppliers when energy usersswitch.
CUSTOMERS OVERCHARGED
The weak hedging position of some small suppliers, which maynot have sufficient financial means to buy further ahead than afew months, has worried other players in the market.
"If one small supplier goes belly up then it will affect allsmall suppliers," said Simon Oscroft, a former energy trader atMacquarie, who set up supplier SO Energy in late 2015.
"Everyone would lose faith in some of those newer, moreinnovative and better managed suppliers. It would set the energyindustry back a few years," Mr Oscroft said, adding that SOEnergy customers sign up on 12-month contracts which his tradingteam can fully hedge in the forward market.
Darren Braham, chief finance officer and co-founder of FirstUtility, said a weak hedging strategy was a "very, very riskyproposition".
"They have got this constant tension between 'how much can Iafford to hedge and suck up working capital' against the risk ofwholesale prices moving against them."
Some smaller energy suppliers are already moving tostrengthen their balance sheets to cope with the market pricerise.
Good Energy, which specialises in providing energyfrom renewable sources, raised 3.1 million pounds in a shareoffer in June, while some of the biggest independent energysuppliers, including First Utility and Utility Warehouse, havehired established trading businesses, in these cases Shell and npower, to carry out trading and hedging.
Opus Energy, a business energy supplier in which TelecomPlus holds a 20 percent equity stake, is considering puttingitself up for sale, the investor said last week.
Ovo Energy and Affect Energy, declined to comment on theirhedging strategies due to commercial sensitivity. Otherindependents contacted by Reuters did not respond to requestsfor comment.
(Additional reporting by Susanna Twidale; Editing by SusanFenton and Lina Saigol)
