The UK energy market has now seen seven providers collapse in 2018. [1] As winter arrives, a number of suppliers are known to be struggling and it may be likely that more will follow. Importantly, the ramifications of supplier failures affect those that remain. As the market undergoes change, all suppliers need to involve themselves in discussions with policymakers and regulators to safeguard their businesses.
Obligations increase the burden on the businesses
Suppliers are one of the primary vehicles for implementing the Government’s energy policy. As the UK energy system undergoes transition and the political focus on the price of energy has intensified, suppliers have been charged with administering a number of initiatives. All of these require resource and a company’s ability to meet their duties under the Renewable Obligation (RO) is increasingly seen as a proxy for their financial health. [2] Ofgem has published details of 14 suppliers who have not paid what they owe under the RO scheme. [3]
Struggling suppliers are a risk to all
A shortfall in RO payments is utilised across the market. Ofgem’s safety net also means the costs of a failed supplier are shared between those that remain. [4]
There are more smaller suppliers
Intuitively, smaller suppliers appear more likely to struggle and increased competition has allowed more smaller suppliers into the market. In 2012, the ‘Big Six’ supplied 99 per cent of Britain’s domestic energy. Non-‘Big Six’ suppliers now account for 25 per cent of market. [5] Ofgem is reviewing licence conditions but this may not be sufficient to address the problems faced by many that are operating already. With the price cap due to take effect in January 2019 and further squeezes from wholesale price increases, more failures could be likely.
To avoid incurring the costs of additional supplier failures, or shortfalls in obligations, businesses need to engage with policymakers to help shape a regime that mitigates against these risks. Industry can contribute to the solution and there is a commercial imperative to do so.
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[1] Ofgem, 23 November 2018, link
[2] The Times, 27 November 2018, link
[3] Ofgem, Renewables Obligation Late Payment Distribution 2017-2018, link
[4] Ofgem, 26 October 2016, link
[5] Ofgem, Retail Market Indicators, link
