Analysis-Flawed market reform leaves energy consumers with less choice – Metro US

Analysis-Flawed market reform leaves energy consumers with less choice

FILE PHOTO: The sun rises behind electricity pylons near Chester
FILE PHOTO: The sun rises behind electricity pylons near Chester

LONDON (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.

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.

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.

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.

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.


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)

(Reporting By Susanna Twidale, additional reporting by Jessica Jaganathan in Singapore; Editing by Veronica Brown and David Evans)