Utility Week

12 | NOVEMBER 2021 | UTILITY WEEK Energy Reset Analysis 'Dysfunctional' energy retail market needs fixing As part of Utility Week's Energy Reset campaign, suppliers, politicians and a former regulator give their view on the turbulence rocking the energy retail market. A ddressing mounting fears over the impact of wholesale power price spikes on energy retailers back in Sep- tember, Kwasi Kwarteng was sanguine. "It is not unusual for smaller energy suppliers to exit the market", the energy secretary told the Commons. However, what we have seen heading into this winter is anything but usual. As one industry observer tells Utility Week: "A few years ago you could pretty much predict the companies that would go to the wall. They had entered the market with an unsustain- able business model and quickly got found out. Now everyone but the biggest players are vulnerable, and even they're taking a massive hit. "What we're seeing at the moment isn't necessarily about unsustainable business models, it's about an unsustainable market." As part of our Energy Reset campaign, Utility Week is looking for the green shoots of reform to emerge out of the current turmoil. However, so far there seems little appetite from the government or Ofgem for radical action to stem the flow of supplier failures. The mantra from both sides is that existing safety nets are holding and consumers are protected by the price cap. While this is true in the short-term, con- sumers will ultimately pay the price with a cap rise in April set to reflect the impact of soaring wholesale prices, as well as the costs resulting from the Supplier of Last Resort process. For Pure Planet founder Steven Day, whose business collapsed in mid-October, it is "illogical" that the government would not support energy retailers when it appears ready to leap to the defence of other indus- tries hit by the fallout of price hikes. He tells Utility Week his business was "caught in the crossfire" of a volatile global market and "dysfunctional domestic policy". He says there was a "massive asymmetry" in the way regulation was being applied in that "only consumers are protected on variable tariffs but the supply base is not, industry is not, business is not". In the announcement revealing the fail- ure of Pure Planet, aŽer backers BP withdrew support, Day and his co-founders warned that more suppliers will go under if help is not made available. They said: "Kwasi Kwarteng says the price cap is non-negotiable. Fair enough. But that doesn't mean helping supply companies needs to be non-negotiable too. If he doesn't act fast, he'll have no suppliers leŽ to be minister of." It's all relative So, if there was to be negotiation on the price cap, what would it centre on? John Penrose, the MP who led calls for the cap to be introduced, has long argued that the wrong model was chosen at the time. He tells Utility Week that now is the perfect time to adopt a formula that works for both sup- pliers and the public. The model Penrose advocates is a rela- tive price cap, in which a maximum mark-up is set between a supplier's best competitive price and their default tariff. He argues that this would still give customers an incentive to switch but, crucially, would protect those who either chose to stay with their current supplier or neglected to switch.

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