Blog Post
The number of failed energy suppliers jumped in 2019
Matt Olney • April 9, 2020
A new study released by Price Bailey has shown that the number of failed businesses that provide and sell electricity jumped by 40% in 2019 when compared with 2018.
What’s the cause?
The study shows that a combination of the introduction of the energy price cap on the rates consumers pay for their usage and increasing obligations on green tariffs heavily squeezed margins in the sector.
The rise in wholesale energy costs also played a significant role.
Price Bailey also warned that whilst the challenges faced by energy suppliers have been well publicised and face attention, the difficulties faced by businesses lower down the supply chain have been overlooked.
The failure of energy supply companies also has a knock-on effect on businesses that engage in the wholesale trade of electricity, with many of them also being forced to shut down.
“There has been a lot of focus on the retail end of the supply chain but whenever an energy retailer goes bust there is a knock-on effect down the supply chain. The number of retail energy suppliers going bust is just the tip of the iceberg. Businesses engaged in the trade of electricity, which are creditors to retail energy suppliers, are going to the wall in record numbers. We are seeing a domino effect. Every time a small energy retailer goes bust, that increases the financial strain on the rest of the supply chain, making those businesses more vulnerable to collapse,” said Paul Pittman a partner at Price Bailey.
The Renewables Obligation
The report puts much of the blame for the collapse of so many energy companies on the ‘perfect storm’ of the introduction of the energy price cap, the wholesale cost of energy (although prices have fallen widely) and the renewable power obligation which it says is particularly bad for the industry.
“The renewables obligation scheme had a shortfall of £97.5m in 2018/19 due to suppliers going bust owing money to the scheme. When a supplier cannot meet its obligations, that cost is passed on to other suppliers. Ofgem wants a competitive energy market but by forcing struggling businesses to pay the debts of failed suppliers and pushing some towards insolvency, the renewable obligation scheme is undermining that aim,” said Pittman.
Will 2020 be worse?
Industry sources polled by the Independent Commodity Intelligence Services (ICIS) show that a growing number of energy suppliers face the risk of collapse as a result of the ongoing coronavirus pandemic.
Energy suppliers are already facing a tough time of things due to increased competition and the introduction of the price cap on energy bills. With the UK in effective lockdown, the income energy suppliers get from businesses has effectively collapsed as most shops and offices have closed.
On top of that, the global economy is forecast to experience a significant downturn over the remainder of the year, the true scale of which is uncertain.
The longer the lockdown continues, the more economic uncertainty rises, and more suppliers will fall into financial difficulty.
Price Wars
Competition in the energy supply sector has heated up with many suppliers dropping the price of their average tariffs.
The average price of the cheapest tariffs is now at the lowest level in more than three years and has fallen by £32.60 since February.
Challenger brands are introducing cheaper tariffs to compete with larger suppliers, putting further pressure on some companies’ income.
“It appears that suppliers are finally passing the fall in wholesale prices on to consumers. Whilst it has taken some time for cheaper wholesale prices to filter downstream, as prices for energy often fluctuate, the sustained period of lower prices has resulted in some very competitively priced tariffs for consumers,” said the head of energy at comparethemarket.com
Further Reading
6 Reasons why consumer switch energy suppliers
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