Over the past few weeks we’ve seen the demise of both Solarplicity and Eversmart Energy. The fifth and sixth energy suppliers to go ‘bust’ this year. With a total of 13 suppliers exiting the market since the start of last year.
We all know that the energy market is experiencing unprecedented turbulence. But does this signal the end of the road for the much-heralded ‘new-world’ for challenger energy suppliers?
What do I think?
As I blogged about in January, my view is that we are actually experiencing a much needed ‘settling’ of the energy industry. As those suppliers who took up their licences with little backing or idea on how to actually run a supply business are starting to find that it’s actually much harder than it looks. Any supplier who starts a business with the intention of making a quick buck, or thinks they can ignore the myriad of licence conditions or other regulatory requirements (including their contributions Ofgem Renewable Obligation, which appears to have done for a number of suppliers over the winter), will find that reality is much tougher.
Two or three years ago, at the peak of ‘new entrant’ bonanza, there were many people coming into the market. They thought that running a successful energy supplier was all about ‘getting the brand right.’ Or running a truly lean business. They failed to recognise the need for two important things. Both of which were vital to the success of their businesses. The right funding in place, and getting the right expertise in early.
Why have these other businesses failed?
Many of the businesses that have failed over the past 18 months have done so because they’ve ignored at least one of those two crucial points. They’ve either been undercapitalised. This means that peaking winter wholesale prices have sent them spiralling into debt. Or they’ve failed to understand their regulatory requirements correctly. Meaning unexpected large payments for things such as their Renewable Obligation. Or poor customer service due to bad systems or poor processes.
Many are now saying that the market will shake out to the ‘big 7 or 10’, but I think that may be slightly over-simplistic. There are many smaller well run and well capitalised organisations out there. All of whom are quietly making a success of running their energy supply businesses. They have a handle on their regulatory and compliance regulations. They are well capitalised, with a good team of industry experts getting on with operations.
With the default of the latest suppliers, there are a number of these industry experts coming onto the market. And I’d encourage any supply businesses who may be feeling under-resourced to consider whether bringing in some experience from the wider industry may help their business going forward.
We’re still seeing new entrants coming to the table. Although not in the numbers of a few years ago! And there is still plenty of room for new suppliers in this new energy landscape.