Utility Week

Utility Week 3rd March 2017

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Page 26 of 31

UTILITY WEEK | 3rd - 9Th March 2017 | 27 Customers Number of active domestic suppliers by fuel type iN Gb Market view L ook at any energy price comparison website and you'll see a growing list of independent energy suppliers. They're either focused purely on the energy market or they're bigger non-energy brands adding energy as a new service for customers – usu- ally as a new revenue stream and to build customer loyalty. Many have been doing a great job com- peting in the market. Recent Which? data shows that independents such as Ecotricity and Good Energy are high in the best pro- viders list and traditional big six players like Npower and British Gas are near the bottom. However, success is by no means a cer- tainty. GB Energy Supply was the first high- profile independent supplier casualty in the market when it ceased trading on 26 Novem- ber 2016, a failure that was ascribed to the fact that energy prices are now rising, making people more risk averse about their options. With independent suppliers in the mar- ket including supermarkets, housing asso- ciations, charities and councils, it's an increasingly crowded market vying for finite custom. It may appear that any business can make money or build custom from selling energy. However, while it is relatively easy to set up, forward planning and market analy- sis is critical. For companies either looking to join the market or already in it, there are opportunities and risks to consider. First, on the opportunities side, set- ting up is relatively quick and easy. There are many IT companies on the market that offer the soware and services needed to get established in compliance with regulation. However, it's important to assess your market opportunity. The number of inde- pendent suppliers is on the rise, and any organisation with a large and established customer base has the potential. It's impor- tant that your brand is associated with good service; moving into energy to overcome fail- ing business activities could be a risk. Con- sumers will have less loyalty to your brand and will therefore be less likely to make the switch to you. If your brand is about making savings, good value or great service, supply- ing energy could be a great fit. What is vital is to have a clear strategy that sets out why you're doing it and how it ties in with what you do. For retailers this may be about adding value to existing loy- alty schemes. For a mobile phone company, it could be about building loyalty through another touch point because customers can switch network provider so easily these days. For a local authority or housing association, it's much more likely to be part of its social value policy. For those businesses setting up simply as a pure energy supplier, it's vital to build loyalty by offering the customer some- thing extra – money-saving tools or advice on energy management or renewables. A critical success factor is having cash and credit – factor in that you may experi- ence rapid growth and need to buy a large volume of energy before selling it and receiv- ing payment from customers. Generally, banks and other investors will support a strong business plan and growth potential, providing the necessary credit lines. However, your ability to hedge the market in terms of trading is also key to ensuring you manage costs. This is where the backing of the right wholesale provider comes in. Find- ing an energy company with deep market knowledge, and products that will be needed to trade effectively, is key when energy prices change daily and are affected by many trends. Technology is also important. Competi- tion is increasing, and it can pay to enter the market when there's something new to offer. You may, for instance, be able to move quicker than incumbents in offering the lat- est smart meter or home energy technology. While there are good reasons to enter the market, there are risks, as recent incidents have shown. Perhaps the most pertinent is the rise in energy prices. Consistently low prices over a relatively long period com- pelled many companies to join the market. Now prices have started to rise, some could get caught out because they lack the required credit or wholesale agreements to purchase sufficient energy to meet customer demand. It's vital therefore to ensure your provider or financier will offer flexibility on credit terms. A secondary issue caused by price fluctu- ations is suppliers being forced to sell energy for less than they paid for it and being bound by 28-day contract terms before being able to bring tariffs in line with market prices. This highlights a need for some cash flexibility too, but also working with a wholesale pro- vider that has the market knowledge and tools required to help you hedge. To avoid these risks, it's vital that poten- tial independent energy suppliers find the right wholesale provider for them. Key con- siderations should be the solidity of the pro- vider's own business, the credit and terms they are willing to provide, their insight into the market and track record in gaining the right prices and the level of technology adopted to make buying and selling energy as simple as possible. Phil Ivers, head of customer optimisation, Gazprom Energy Risks and rewards Companies mulling the possibility of becoming , according to Phil Ivers. Source: Ofgem Gas Electricity Gas and electricity Number of active domestic suppliers 10 20 30 40 50 0 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Jun 2014 Sep 2014 Mar 2015 Jun 2015 Sep 2015 Mar 2016 Jun 2016 Sep 2016

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