With the wave of collapse in the UK energy supply market, UK homes are facing billions of pounds of bills to bail out stranded customers. But it offers an opportunity for larger rivals who can survive the gas price storm.
British Gas, EDF Energy, Eon, Octopus and Shell each have hundreds of thousands of retail accounts through the regulator Ofgem’s “Last Resort Process Supplier”. Ovo Energy, the UK’s third largest energy supplier serving 4.5 million households, continues to consider. Approach to the light bulb, Has about 1.7 million customers, We are competing to secure new funds.
Industry executives say that only seven or eight large companies have balance sheet strength or financial backers to accommodate a large number of isolated customers. However, large suppliers claim that it is wrong to characterize them as “winners” of the crisis.
“Currently, we are actually losing to new customers,” said Simone Rossi, CEO of EDF Energy, with record wholesale energy prices and each customer under Ofgem’s price limit. He emphasized the widening gap between what can be claimed.
“For now, this is a huge problem for the industry as a whole,” he told the Financial Times, adding that the crisis is “something worthwhile” when it comes to regulatory reforms.
Wholesale prices mean that the cost of supplying each household is about £ 700 a year higher than Ofgem’s price limit, which is currently £ 1,277 based on average usage. The cap is reviewed only twice a year, lagging behind market movements.
Advisor Steve Jennings said: For public utilities.
Following the last decade of reforms to intensify competition in the market, the number of suppliers exceeded 70 in 2018.
According to industry experts, the consequences of the crisis could return to a sector dominated by a small group of large corporations, with British Gas, Eon, EDF, Npower and Scottish Power’s “Big Six” reminiscent of 10 years ago. It is said that it is expensive. And SSE Hold 99% Of the market to the frustration of politicians and regulators.
Some of the original “Big Six” are not included in the game. SSE sold its UK retail business to Ovo last year and Npower was integrated into Eon in 2019.
They are not only competitive transactions Innovation For example, “Vehicle to Grid” technology that allows electric vehicle drivers to sell the power stored in their batteries back to the grid during peak hours.
Volume is important in industries with low margins.Shares of Centrica, owner of British Gas Suffering from customers jumping ships for years It has increased by 28 percent since the beginning of August, as rivals offering price cuts, but North Sea producers have benefited from rising oil and gas prices.
The cost of taking on a customer from a failed supplier can be recovered through an industry levy that filters consumer energy bills. Ofgem said these costs include “the ability of suppliers to claim reasonable profits.”
However, Centrica states that the process took about two years and “it is becoming increasingly difficult for responsible suppliers to continue to bear the costs.” .. .. Failure “.
“There is no future winner because market failure is at the expense of all consumers,” Centrica told FT. “Old times are gone and we welcome strong and effective competition.”
The estimated £ 1 billion cost of rescuing customers from failed suppliers since early August is expected to rise as more companies collapse. It will eventually fall on the consumer.
Suppliers also have the majority of customers in failed companies Automatic switching company — A website that automatically transfers you to the cheapest transaction available, such as Look After My Bills. Therefore, they may not stick long when wholesale prices begin to fall.
Doug Stewart, CEO of niche green energy supplier GEUK, is one of the industry players who argue that big things in today’s market don’t necessarily mean bad things.
Ten years ago, “Big Six” profit margins and executive bonuses appeared Under constant political and media oversight.
“We should be grateful that there are large companies in the industry that can absorb these failures,” Stewart said. “And despite the oligopolistic competition, competition exists … A well-run business can survive.”
Observers point to the goals listed Good Energy and Ecotricity as examples of well-operated small suppliers that can continue to provide competition to large companies.
Analysts argue that more innovative members of the new “Big Eight” such as Ovo and Octopus will continue to support large “legacy” suppliers such as British Gas and EDF.
“We will focus on a small number of suppliers, but I think the market is still different from what it was ten years ago,” said Jennings. “Customer service has improved significantly and innovation has increased significantly. Did. “.
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