Why are energy suppliers going out of business?

Market Overview

Historically in Great Britain, the ‘Big Six’ have dominated the retail electricity market (British Gas, Npower, Scottish Power, SSE, EDF and E.ON). Small suppliers have disrupted this dominance in recent years,  with the market share of the ‘Big Six’ falling from virtually 100% in 2011 to 73% in Q1 2020[1] (accounting for OVO’s acquisition of SSE’s retail business). Small suppliers have been extremely successful in attracting customers away from the market incumbents by offering ‘green tariffs’, cheaper deals, taking advantage of the general consumer mistrust of the larger companies, and have been aided by the ease at which customers can now switch supplier.

Why have small suppliers went out of business recently

While there have been an abundance of good news stories regarding some of the smaller suppliers (OVO Energy and Octopus Energy have both achieved considerable success over recent years) there has been a number of small suppliers that have went out of business. Robin Hood Energy, a non-for-profit supplier run by Nottingham City Council, went out of business in September 2020. In 2019 Robin Hood Energy received a loan from the council for £9.5million in order to pay its Renewable Obligation costs. All suppliers of electricity are required to obtain Renewable Obligation Certificates (ROCs), awarded on a MWh of output basis, to match the electricity they have supplied (roughly £45/MWh). The certificates have been used to fund renewable generation projects since its inception in 2002. The scheme closed to new projects in 2017, however, funding is still required for existing projects built using the scheme. Many small suppliers have struggled to finance such payments – for the 2018/19 period a total of 42 suppliers failed to meet the 1st September deadline. Of these 42, 16 suppliers either had their supply license revoked or entered into administration[2]. While Robin Hood were essentially bailed out for this payment, time eventually caught up with them with Nottingham City Council deciding that they can no longer afford to support the loss-making company.

The Future of the Retail Electricity Market  

Shell acquired First Utility in 2018, and in doing so entered the retail electricity supply market. As with Amazon and Google’s involvement in acquiring renewable generation assets, there is a growing market trend towards ‘outsiders’ entering the electricity market in some form or another. The rise in smart home appliances and Electric Vehicles has seen the nature of product offering change significantly in recent years, with Octopus Energy having a product offering where they will pay customers to use electricity[3]! Given the competitive nature of the market and the increasing ease at which customers can move supplier, it is clear that suppliers will need to continue to come up with innovative ideas to survive in the market. Who knows, in the not too distant future retail electricity suppliers may give you a free washing machine on the basis that they can remotely decide when to turn the machine on or off!

[1] https://www.ofgem.gov.uk/data-portal/electricity-supply-market-shares-company-domestic-gb

[2] https://www.ofgem.gov.uk/publications-and-updates/renewables-obligation-late-payment-distribution-2018-2019#:~:text=Suppliers%20have%20until%201%20September,late%20payments%20by%2031%20October.

[3] https://octopus.energy/blog/cheaper-greener-agile-energy/


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