Analysis: Flawed market reform leaves energy consumers with less choice
09/12/2021 13:53
* Record high wholesale energy prices globally
* Number of British suppliers has halved in 2021
* British Regulator Ofgem seeking market reforms
* Suppliers collapse in Singapore and the Netherlands
*
By Susanna Twidale and Nina Chestney
LONDON, Dec 9 (Reuters) - High gas and power prices have
driven energy retailers to the wall in many countries in a blow
to market liberalisation efforts, leaving consumers with higher
bills, a smaller pool of suppliers and calls for market reform.
The number of companies supplying gas and electricity to
British homes has more than halved this year, while in Singapore
companies supplying around 9% of the market have collapsed.
A fifth company in the Netherlands on Thursday announced it
had run into trouble, while some German suppliers have also
exited the market. urn:newsml:reuters.com:*:nL1N2SU0H0
European market liberalisation has given rise to several
energy providers without their own power generation. Those
companies were caught off-guard by rocketing global wholesale
energy prices.
Benchmark European gas prices this year surged as much as
700% by October and British prices climbed around 500% as global
economies recovered from the pandemic and sucked in gas,
particularly Asian nations at a time when European stocks were
low. urn:newsml:reuters.com:*:nL8N2S96DJ
While prices have since fallen, they remain much higher than
the beginning of the year with further shocks on the cards this
winter if temperatures drop sharply or there are supply issues.
The power price shock along with rallies in oil prices are
also adding to wider inflationary pressures.
As well as reducing choice, the collapse of companies in
Britain has left a bill running into billions of pounds which
will eventually be spread over customer's payments - prompting
calls for an overhaul of the market.
"The current system was not designed for this sort of
extreme market event," a spokesperson for regulator Ofgem said
on Thursday, announcing it will soon propose reforms.
urn:newsml:reuters.com:*:nL8N2ST4JK
As British wholesale prices soared, the cost suppliers could
charge for their most widely used tariffs has been limited by
the regulator Ofgem's price cap.
Analysts suggest the difference companies can charge and the
amount it costs them to supply electricity to new customers is
around 400 pounds a year.
"The price cap has been an absolute catastrophe in these
market conditions," said independent energy analyst Peter
Atherton.
The biggest casualty so far is Bulb. With around 1.6 million
customers, Bulb is also the first company to go into Ofgem's
Special Administration Regime (SAR) with an Energy Supply
Company Administration Order.
This means the company can continue to run while a solution
is found, propped up by taxpayers cash with government loans of
around 1.7 billion pounds ($2.3 billion) agreed.
"The administrators are legally obliged to operate at the
lowest possible cost, so it is uncertain at this stage how much
of the loan will eventually be used," a government spokesperson
said in an email.
Atherton said the money was likely to be used to keep the
company running through the winter period and until calmer
pricing conditions meant other firms were able to take on new
customers.
In Singapore, five electricity retailers exited the market
earlier this year after a surge in electricity prices amid gas
shortages left firms that had locked in prices with customers
struggling to meet their demands at lower prices.
The companies, Best Electricity Supply, Ohm Energy, UGS
Energy, SilverCloud Energy and iSwitch supplied around 9% of
Singapore's electricity consumers, with their closures a setback
to the country's power market liberalisation.
State-owned utility SP Group still controls around 50% of
the market and the country's Energy Market Authority (EMA) in
October moved to provide standby reserves to ensure gas is
available for power generation firms if needed, to help
safeguard the country's energy security. [nL1N2RG024
In Britain energy suppliers say the regulator has been slow
to act.
Traditional suppliers hedge their customers' needs well in
advance, but some of the smaller players avoided that strategy
to give them greater price flexibility and try to profit from
arbitrage between wholesale and retail prices.
"It's crazy the financial prudence test hadn't looked at
whether companies were buying short and selling long ... The
issue here has been imprudent trading," said Greg
Jackson Founder and CEO, Octopus Energy, which now controls more
than 8% of the domestic market.
Ofgem said on Thursday its planned reforms will address
concerns around the market's financial resilience, as well as
ensuring that fair prices are reflected through the price cap.
A decision on any new change to the price cap will be
published in February, when the next price level for the
mechanism will be announced and in time for changes to be
implemented before taking effect in April.
COST OF FAILURE
In Britain, failed companies - excluding Bulb - had more
than 2 million customers combined who were transferred to new
suppliers.
Customers' potential new energy costs will be covered by the
regulators price cap, but if they were on cheaper fixed tariffs
they would likely need to pay more with their new supplier.
At the start of the year there were 52 energy suppliers,
data from regulator Ofgem showed, with around half of these
leaving the market this year Ofgem and Reuters data showed.
Bulb has been placed in special administration more
companies could collapse before the year is out.
"I think you are looking at 11 or 12 suppliers by
Christmas," said Paul Richards, chief executive of Together
Energy which has around 300,000 customer accounts.
($1 = 0.7506 pounds)
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ANALYSIS-'Living hand to mouth': Europe's gas crunch shows
little sign of easing L8N2S96DJ
Active British energy suppliers https://tmsnrt.rs/3rJelFx
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(Reporting By Susanna Twidale, additional reporting by Jessica
Jaganathan in Singapore; Editing by Veronica Brown and David
Evans)
((susanna.twidale@thomsonreuters.com; +44 207 5424753;))