Worries grow over possible wave of small energy supplier failures in October
Leaders of some of the UK’s largest energy suppliers have voiced concerns that the industry is facing a wave of smaller suppliers going bust due to high wholesale gas and electricity prices.
What’s happening?
Wholesale energy prices have risen sharply from the record lows recorded during the height of the Covid-19 pandemic. As economies around the world eased their restrictions, demand for electricity and gas naturally rebounded sharply, sending prices to their highest level since 2005.
The main concern being voiced by some in the industry is that smaller energy suppliers, in their attempt at attracting as many customers as quickly as they can they are offering tariffs well below the prices necessary to be sustainable.
As the chief executive of Scottish Power, one of the country’s largest suppliers said, “A massive train crash is about to happen because their models are unsustainable. Prices have gone through the roof, and they can’t cope.”
In recent years smaller energy suppliers have been able to snatch up a sizable part of market share by offering fixed price deals that undercut their much larger rivals. With wholesale prices being way above what these companies are selling at they are at risk of failure.
Commercial suicide?
“There are still two or three companies offering contracts under £1,000 per year. That is 100% commercial suicide. The rationale is to get more customers to get the cash to fund your forward purchases. That model is going to hit a brick wall,” Scottish Power’s CE added.
Challenger energy suppliers have utilised such models to undercut the competition in recent years, and to an extent that strategy has worked.
Smaller suppliers have also been growing rapidly in the electricity sector, with 28.2% of all installed meters being from smaller suppliers.
Meanwhile, the larger suppliers such as E.ON, British Gas, EDF Energy, npower, SSE, and Scottish Power have seen their combined market share fall from the 82.7% recorded in October 2015 to 71.8% in October 2020.
To try and stay fiscal the smaller suppliers are trying to keep signing up customers in order to bring in enough money to survive but with wholesale prices being so high it is feared many are struggling to keep up.
Also read: Smaller Energy Suppliers continued to snap up market share in 2020 shows new report
October insolvencies expected
October is always a tricky month for smaller energy suppliers as it is then that they have to pay out for several green energy schemes and meet payment deadlines.
Some suppliers use the money they’ve collected from their customers to try to keep trading rather than using it to fund the payments.
Last October Tonik Energy went under and in January this year Yorkshire Energy, Green Network Energy and Simplicity Energy all failed as a result failing to find the funds to pay their renewables obligations.
Also read: Tonik Energy ceases trading as it fails to pay Renewables Obligations
Failing suppliers impact the wider industry
When an energy supplier fails, the wider industry is impacted as it is forced to pay for any unmet payments as well as for any credit balances customers of the failed supplier may have.
Customers of the failed supplier are protected, however, by Ofgem’s Supplier of Last Resort (SoLR) scheme.
Ofgem has introduced tougher measures on supplier finances and proactively monitors their financial resilience, the risk of supplier failure and how they treat their customers,’ said Neil Lawrence, retail director at Ofgem.
Looking to enter the UK energy market? Dyball Associates team of energy market consultants can guide you through the steps to get qualified and attain your gas or electricity licence.
Whether you’re looking for electricity and gas systems or support on starting an energy supply company, Dyball Associates can help.
Further Reading
Ecotricity makes bid for Good Energy official, but takeover is unanimously rejected
Dyball Associates are proud to help new supply businesses successfully launch in the UK market.
Through our energy market consultancy services, and the software we've developed, we're supporting new UK electricity and gas suppliers get set up and start supplying.
Follow us on LinkedIn to keep up to date with the latest news and updates in the energy industry.
More articles
Latest News
© 2022, Dyball Associates Limited. All Rights Reserved.
Web design by CW.
