Utility Week

28 | OCTOBER 2021 | UTILITY WEEK Customers "The price cap on suppliers doesn't aff ect global commodity prices or the price paid to generators and that's where the current price pressures are coming from." Michael Lewis, CEO, Eon UK Analysis Competition knockout blow With soaring wholesale gas prices threatening a cull of smaller suppliers, could we soon be back to square one with only a handful of heavweight energy retailers? Adam John reports. It was a stark illustration of how turbu- lent the energy retail sector has become. On 16 September visitors to one of the UK's larg- est price comparison websites (PCWs) were greeted with a message that they could no longer search for energy deals as retailers were severely limiting the tari- s on o- er. Over the following days, the normally bustling landscape of suppliers seeking to grab the attention of wandering customers across various PCWs became a desert. This was just one example of how whole- sale power prices in mid-September, at rates of at least eight times higher than the aver- age for 2019, forced retailers into a desperate retreat. As Utility Week went to press, it was already clear that, a‰ er a lull of market exits in 2020, we are witnessing a fresh wave of market failures. The most pessimistic predic- tions suggest that from a peak of more than 70 suppliers in 2017/18, the market could shrink back to a handful of large players once again. At the time of writing, nine suppliers had exited the market in 2021, already equal- ling the unwelcome record in 2019. These suppliers le‰ 1.5 million customers in the hands of the Supplier of Last Resort (SoLR) programme. At a time when wholesale prices are rock- eting, further mutualisation of Renewables Obligation payments seems likely and sup- pliers are bound by a price cap, who would want to take on more customers? Could we even see Ofgem forcing a supplier to become a SoLR? For some, the only suitable contenders for such a signi– cant number of accounts are the large players who have deep pockets and those that are vertically integrated. SoLR is not an easy process because sup- pliers have to incorporate complex systems into their own, made even more di— cult if a company exits the market in a disorderly fashion. Furthermore, many customers will be coming across on loss-making tari- s, compounding an already volatile situation with the rising wholesale prices. Rik Smith is a former energy expert at Uswitch who now works for a property let- tings platform. Smith believes the latest SoLR opportunities could be a chance for legacy suppliers to regain some lost ground. Speaking in a personal capacity, he says: "The larger, vertically integrated suppliers are best for taking on such a large number of customers just because they've got deep pockets. They are going to be the ones who can fund it because they are not going to get money back from Ofgem for some months. They have to have billions of pounds avail- able to front the wholesale costs or at least a good slice of it. "They will probably enter into it with the expectations that they will lose around half of them within months, which is di— cult to judge. They will also probably be the ones that have done this before and have got a good relationship with Ofgem. "They could rebuild a big wedge of cus- tomers. Given the PCWs have slowed down enormously, their churn will have reduced as well. They will be seeing it as an opportunity to regain market share and win back custom- ers they have lost. It's a pretty tough sell, though; these people are price hunters, they have come from PCWs and autoswitchers." The fact many of these customers who now – nd themselves without a supplier are also autoswitch customers only exacer- bates matters for the new SoLR. Two of last month's failed suppliers, People's Energy and Utility Point, are known to have worked closely with autoswitching service Look A‰ er My Bills, and one industry insider says as many as 50 per cent of the customers now facing the SoLR process were acquired by autoswitching. Companies who are signed up with autoswitching services will see a signi– cant number of customers on their cheapest tar- i- s and not many on their more premium o- ers. These suppliers then have to price low in order to keep customers or see them disappear. Additionally, this makes rescuing these customers when a supplier goes under an unattractive proposition because they will be price driven and will quickly move on to cheaper deals. Vertical integration – the only way? Vertical integration has not always had a good press over the past decade, with con- cerns raised that it hampered competition in "The price cap on suppliers doesn't aff ect global commodity prices or the price paid to generators and that's where the current price pressures are coming from." Michael Lewis, CEO, Eon UK eting, further mutualisation of Renewables

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