Retail energy markets in 2019 - a recap of the interesting bits

Happy New Year!

As we kick off 2020, we at TheEnergyShop.com thought it might be worthwhile to provide a summary of the key events of 2019 which have shaped, and will likely continue to shape, the retail energy markets into 2020 and beyond.

2019 was a year that was characterized by many failures; failures of many smaller energy suppliers and the failure of the energy price cap to bring "an end to rip-off energy prices once and for all". Amongst all the carnage, there was also a major shift in the ownership of customers resulting from corporate transactions, with around 10 million customer accounts having changed, or being in the process of, changing ownership.

This update looks at some of the more interesting aspects of the retail energy markets in 2019.

What happened to energy suppliers? Energy suppliers that failed....

  • 8 domestic energy suppliers ceased trading (see Table 1 below).
  • 472,000 energy consumers were shunted onto energy suppliers they never picked.
  • 177,000 (38%) of those customers ended back up with one of the Big 6 (now Big 5) energy suppliers - basically where they started. This rises to 412,000 (87%) if you count OVO energy as one of the new "Big 5".

Failure to adequately provision for, and make, Renewable Obligation (RO) payments was the trigger that tipped many of these companies into failing but it was not the underlying reason for the failure. Ultimately these companies featured some, or all, of the following characteristics; lack of profitability, poor management, insufficient funding.

A 9th energy supplier, URE Energy had its supply license revoked by Ofgem (14 Sep 19) also for failing to make RO payments. This effective wind up did not go through a formal transfer of customers under the Supplier of Last Resort (SOLR) process, so it is uncertain how many customers were affected or what happened to them.

Energy suppliers that sold out....

Supplier failures were dwarfed in scale by corporate acquisitions where somewhere in the region of 10 million customer accounts changed ownership (or are in the process of changing ownership).

  • 4 domestic energy suppliers exited the market through trade sales (Coop Energy, Green Star Energy, npower and SSE (transaction to be completed)).
  • Co-op Energy, with around 300,000 domestic customers, essentially sold out to Octopus Energy on 29 August 2019, for an undisclosed sum. The deal was dressed up as "an exciting new strategic partnership" although it was, to all intents and purposes, a sale of the customer base.
  • Green Star Energy, with approximately 200,000 domestic customers, was sold to Shell Energy on 29 November 2019 for an undisclosed sum. Had that transaction not completed, there was a material uncertainty as to whether Green Star Energy could continue as a going concern.
  • After the proposed merger between SSE and npower's retail business was scrapped in December 2018, npower ended up being acquired by E.ON as part of E.ON's complex asset swap with Innogy. When the E.ON / Innogy asset swap deal was cleared by European Competition Authorities (18 September 2019) E.ON promised to quickly clarify the future of npower. At that time, E.ON's Chairman and Chief Executive, uncharitably but accurately, described npower as "an open wound that is bleeding profusely." Sure enough, in November 2019 E.ON announced plans to move all domestic npower customers onto E.ON's IT platform resulting in the loss of around 4,500 jobs. npower's estimated 3.5 million customers accounts (a number that has been falling very quickly) were transferred to E.ON.
  • SSE and OVO Energy agreed a deal (13 Sep 2019) whereby OVO would acquire the retail energy business of SSE for £500m. As part of the deal OVO will take over SSE's 3.5 million domestic household accounts (around 5.7 million customer accounts) and 8,000 staff. The deal received regulatory clearance on 10 December 2019 and is expected to complete in January 2020.

Energy suppliers that just about scraped through....

  • Robin Hood Energy was the subject of a proposed final order from Ofgem for not having paid £9.4m in Renewable Obligations for 2018-19. The company was bailed out with a £9.5 million loan by its owner, Nottingham City Council. The loan allowed Robin Hood Energy to make its ROC payments in full and avoid having its license revoked. The loan is interest bearing and repayable in 6 months. It will be interesting to see how this non-profitable "not for profit" supplier is going to secure the cash to repay the loan on time. One to watch for 2020.

Table 1 - Energy Supplier Failures 2019 (Reverse Chronological Order)
DateSupplierNumber of domestic customers affectedLikely trigger for failure
18 Dec 2019Breeze Energy18,000Failure to meet Renewable Obligation (RO) payments
23 Oct 2019Toto Energy134,000Failure to meet RO payments
6 Sep 2019Eversmart Energy29,000Not specified – ran out of cash
13 Aug 2019Solarplicity7,500Failure to meet FIT (Feed In Tariff) payments to FIT suppliers.
9 Aug 2019Cardiff Energy Supply800Unviable business
11 Mar 2019Brilliant Energy17,000Poor business model
25 Jan 2019Our Power31,000Hopelessly unviable business model
8 Jan 2019Economy Energy235,000Failure to meet RO payments together with other enforcement and compliance related issues.
Source: TheEnergyShop.com

What happened to the Energy Price Cap?

2019 began with the first phase of the energy price cap kicking in on 1 January 2019.

From 1 January 2019 customers on Standard Variable Tariffs (SVTs) and other default tariffs saw their average energy bills cut by £75, to £1,136, for a dual fuel energy customer with average energy usage.

This cut was relatively short-lived as the cap was then increased by £117 (10.3%) to £1,254 from 1 April 2019.

1 October 2019 saw the third iteration of the cap cut bills by £75 (3.4%) to £1,179.

So how well did the price cap perform overall?

So far, we've had 2 cuts totaling £159 with a massive hike of £117 in between. On balance this leaves Standard Variable tariffs £43 lower than they were before the price cap came into effect.

However, the cheapest deals over the same period have fallen by £79. This means that the price cap hasn't even managed to keep up with the competitive energy market. Had the price cap not been implemented it is quite feasible that competition would have driven down the price of SVTs by more than the energy price cap did.

Remember, the energy price cap was supposed to reduce the spread between poor value Standard Variable Tariffs and the cheapest energy deals so that those customers who, for whatever reason, couldn't or wouldn't switch would end up overpaying by less. The reality is that the spread between SVTs and the cheapest deals has actually increased which means that price cap protected customers are overpaying by even more than they did without the cap. In terms of its main fundamental objective, the energy price cap has been an abject failure.

What happened to the cheapest energy deals?

During 2019, the cost of the cheapest energy deals fell faster than the energy price cap – something that was definitely not supposed to happen. Therefore, savings from switching have, apart from a short 3-month period, actually increased over the course of 2019. This means that savvy switchers have continued to reap all the benefits from the hugely competitive energy market. In contrast, price cap protected customers continue to lose out at a rate of £30 a month.

Prior to the price cap coming into effect average savings from switching from a Standard Variable Tariff were typically around £340 a year. Following the introduction of the energy price cap, savings from switching are now even higher at £353 a year. So much for "fairer energy prices".

A selection of thoughts and comments.....On the energy price cap....

Joe Malinowski, founder of the award-winning energy price comparison website TheEnergyShop.com commented.

"The energy price cap has been an abject failure. The cap was introduced so that those customers who, for whatever reason, couldn't or wouldn't switch would end up overpaying by less for their energy. The reality is that the price cap has failed to keep up with the competitive market and customers are over-paying by even more.""

Joe Malinowski, continued

"11 million customers on standard default tariffs have already each lost out by £335 since the cap came into effect. They will each continue to lose an additional £30 a month for a long as they stay on a default tariff under the false pretense that they are getting a fair price for their energy."

Joe Malinowski, concluded

"As always it is the savvy switchers who reap the rewards from the competitive market pocketing savings of £350 compared to those on Standard Default Tariffs. For those keen on getting their finances under control in 2020, it's time to ditch the energy price cap and switch to a competitive tariff."

On energy supplier failures....

Joe Malinowski, founder of the award-winning energy price comparison website TheEnergyShop.com commented.

"Energy supplier failures are, no doubt, an inconvenience to consumers. Those customers affected have the inconvenience of getting their supply shifted, while the unpaid bills of the failed supplier get loaded onto everyone else's energy bills."

Joe Malinowski, concluded

"But don't let that prevent you getting a £350 annual saving. There are many well operated, highly rated and viable energy suppliers in the market. Indeed, some of the cheapest deals currently being offered are from the Big 5. What's important is to check the new supplier and avoid getting sucked into cut price deals from small suppliers that ask for several monthly payments in advance."

On switching....

Joe Malinowski, founder of the award-winning energy price comparison website TheEnergyShop.com commented.

"The cheapest deals in the energy market have been falling as the Big 5 energy suppliers fight back with cut priced fixed energy deals to take on the smaller energy suppliers. This means that the cheapest deals are now more than £350 cheaper than the Standard tariffs of the Big 5. This presents a great opportunity for consumers. Seasonally energy prices rise over the winter months. so now is a great time to lock in a low price in case they do."

Contacts

Scott Byrom
Chief Executive Officer
07772 129 591
scott.byrom@theenergyshop.com

Joe Malinowski
Founder
07970 160 541
joe.malinowski@theenergyshop.com

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