ScottishPower warns of energy market ‘massacre’

The head of one of Britain’s biggest utilities has urged UK ministers to urgently review the energy price cap, warning that persistently high wholesale gas prices could trigger an “absolute massacre” in the retail market that could claim another 20 suppliers.

ScottishPower chief executive Keith Anderson said even well run energy providers now face running out of cash. “There is a significant risk you could see the market shrink all the way back to five to six companies,” Anderson told the Financial Times.

The comments come as the retail energy market reels from a crisis that has led 14 British energy suppliers to collapse since the start of August, as low natural gas supplies push wholesale prices to a level five times higher than a year ago.

Anderson said regulator Ofgem and the government must look at changing Britain’s price cap, which protects at least 15m households, earlier than its next scheduled review in April so suppliers can pass on spikes in their costs sooner.

He predicted the industry as a whole could be left nursing losses of up £5bn by May next year as suppliers are forced to buy energy for households nearing the end of their fixed-price deals.

ScottishPower, Britain’s fifth-biggest energy supplier with 3.7m retail customers, estimates that industry-wide up to 2m households’ fixed-price energy deals will terminate before the end of the year.

A large proportion of those households would normally shop around for another fixed-priced tariff but deals currently on offer are at least £700 more expensive than the price cap under which suppliers can charge a maximum of £1,277 a year based on average usage.

Price comparison websites have been advising households to roll on to tariffs protected by the cap once their fixed-price deals come to an end.

ScottishPower said suppliers would make a loss of £1,000 every time households come off a fixed-price deal on to a cap-protected tariff, given the current costs of buying energy for those customers at current market prices.

“The only companies that can survive are the ones that are incredibly financially strong, have incredibly liquid balance sheets and access to lots of cash,” Anderson said.

He warned that while many of the suppliers that had failed since the start of August “weren’t particularly well run”, the next wave of the crisis was likely to sweep up well managed companies. Without government and regulatory intervention, “we are in danger of just sleepwalking into an absolute massacre,” Anderson said.

He said the price cap — which currently changes twice a year in April and October — probably needed to be adjusted at least four times a year. “We don’t think the regulator and the government understand the pressures that are going to descend upon the sector,” he added.

Ofgem and the government insist the price cap will remain at its current level throughout winter to protect households from the worst of the wholesale market swings, although analysts are warning customers will face steep rises from April next year.

Ofgem said on Wednesday it was “working with government to ensure that we have a sustainable energy market that works for all customers”.

The Department of Business, Energy and Industrial Strategy said the price cap was “the best safety net available to protect consumers from instant, excessive price hikes. When suppliers do cease trading, we have a clear, well-rehearsed process in place to make sure customers are protected and supply is not interrupted.”

Additional reporting by David Sheppard


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