The last month has seen announcements relating to the UK’s retail energy market which have potentially seismic implications.
Consolidation & exit: With OVO’s proposed acquisition of SSE’s customer base and the path cleared for E.ON/Npower integration, the traditional ‘big 6’ view of the market will be a thing of the past. The fact that SSE have decided to exit the market, and the same option is one of several being tabled for Npower’s beleaguered customer base highlights how tough it really is to make money in the current climate. This massive structural change however creates challenge and opportunity for the whole market. Also announced is Octopus and Coop’s planned partnership demonstrating the value placed on scale in being able to deliver low cost to serve operations. We’re seeing the emergence of a new set of ‘major players’ with all the benefits and challenges that scale entails.
Naughty step: OFGEM unceremoniously put four suppliers on the naughty step this week, for failing to pay their renewable obligations (RO) on time. Inevitably the focus has been on Robin Hood Energy, who owes the lion’s share of the £14.1m outstanding with media interest focusing on the fact that failure to pay the RO has historically been an early warning indicator of supplier failure. Whatever, the outcome for Robin Hood, the public statements made by Nottingham’s auditor highlights how tough it is for all concerned after an investment made to date of around £40m. The overlay here is that Robin Hood’s fate is heavily linked to the majority of the existing white label suppliers favoured by local authorities. Robin Hood has been highly successful in leveraging the white label model- which could again have the potential for major shifts in market dynamics if it unwinds.
Continued exits and few new entrants Eversmart and Solarplicity join the twelve other small suppliers that have exited the market, and the flow of new entrants has almost stopped. The optimism of a few years ago appears to have evaporated after the slew of failures and media coverage in the last year.
In this context, it would be easy to run for the hills rather than look at investing in energy retail.
However, from adversity comes opportunity, and there is an argument to say there has never been a better time to enter the market.
Entering the energy retail market is complex and not without risk. However, the ability to lead the way in helping consumers drive towards a low carbon future is a compelling business proposition. It is the ability to effectively develop a sustainable market strategy and understand and manage the inherent risks that will separate those who win and those who lose. It could be a great time to join the party!
EnergyBridge helps businesses, investors and local authorities navigate the complexity of the UK market with a combination of market and operational expertise and experience. www.energybridge.co.uk