Eight small energy suppliers closed their doors last year as rising wholesale costs tipped them over the edge, and the trend has continued into 2019, with the recent insolvency of Economy Energy, followed by Our Power, which failed on Friday. Industry watchers predict there are more failures to come.
The string of collapses has shone a spotlight on unsustainable pricing by new entrants and on the costs all households face from picking up the pieces. What is less remarked upon is how the events have redrawn the landscape of the energy sector.
Suppliers who have had to take on more than 800,000 displaced customers have received a huge boost to their growth, posing a serious threat to the dominance of the market’s “big six” suppliers – British Gas, EDF, E.ON, npower, ScottishPower and SSE – which control four-fifths of the market.
While bodies such as energy regulator Ofgem and trade group Energy UK have lauded the entrance of new players as a sign of healthy competition – taking the number of suppliers to more than 70 at one point – until recently few have seriously begun to rival the big six for scale.
The closest to bridging the gap is a trio of medium-sized firms: Ovo Energy, First Utility and Bulb.
Ovo has made the bold gambit of taking on half a million customers from the failed companies, taking it to 1.5 million and a market share of 4.9%. That puts it within touching distance of npower’s 7.7%, according to data from energy market analysts Cornwall Insight.
Robert Buckley at Cornwall Insight said consolidation had redrawn the market. “There has been a lot of negative press surrounding the exits, focusing on fragile business models, and rightly so. However, currently there are no signs that these exits have caused any real degradation to competition in the retail market.
“The shake-up has presented an opportunity for several suppliers to grow, changing the face of the retail landscape in the process.”
Ovo, which launched a decade ago, said it would consider taking on more displaced customers if more companies fold. “Taking on Economy Energy and Spark Energy customers has been significant for us – an increase of more than 500,000 customers – but we are prepared for more if the right opportunities arise,” said Stephen Fitzpatrick, Ovo’s chief executive.
He said the company had been disciplined with its pricing and had chosen to avoid a “race to the bottom” with loss-leading tariffs.
“What the last few months have shown is that it’s not just about getting bigger fast. We’ve already seen some of the larger independent energy companies fail – the market is going through major change and many companies, big and small, are struggling to adapt,” he said.
Bulb, by contrast, has not taken on any displaced customers, but has grown fast since its launch in 2015. The company added 700,000 customers last year, taking its market share to 3.1%, and is now on the verge of passing 1 million clients.
Hayden Wood, the company’s founder, said there was a “next generation” of suppliers who could close the gap to the big six within a few years. Consumers were switching to those newer challengers because of price and service, he said, pointing to the record 5 million-plus households who switched last year.
“We don’t see any reason why this trend wouldn’t continue. We do see this gap with the big six closing: it’s just a matter of time. I don’t think it’s a matter of months – I would be aiming for two to three years.”
First Utility, which launched in 2008, is the third-biggest challenger, with about 760,000 customers. It was bought by oil company Shell in 2017, since when it has actually shed tens of thousands of customers. The oil giant has said, however, it wants the supplier to “grow significantly”.
While challenger firms have used the failure of their peers to grow quickly, there is a question over how many of those customers will stick around. Co-op Energy swelled to more than 410,000 customers after it took on 160,000 from a collapsed company in 2016, but that figure has since dropped to around 372,000.
Whether or not more collapses and consolidation help challenger firms close the gap, one thing is clear – all households will have to pick up the bill for failures. Cornwall Insight estimates more than £6 will be added to every consumer’s annual dual-fuel bill, because of the costs of appointing new suppliers and spreading out the cost of firms’ missed renewable energy payments.