World : First Utility says newer energy firms will go bust

Smaller suppliers operating ‘house of cards’ model that will collapse, says chief executive

A challenger UK energy company launched a decade ago has said newer, smaller suppliers are operating a “house of cards” model that will collapse and result in firms going bust.

Colin Crooks, the chief executive of First Utility, said many of these energy firms were undifferentiated and exposed to volatility in wholesale prices.

“I do think we’ll see some failures … some suppliers are struggling at the small end,” he said.

Crooks cited Flow Utility, which he said was “basically bankrupt” when it was bought for £9.25m by the mid-sized supplier Co-operative Energy

“There’s a lot of small suppliers playing exactly the same game … I just see this house of cards actually tumbling down,” he said.

First Utility is the eighth biggest supplier with 825,000 customers, behind Ovo with 1 million and the big six who control 80% of the market. Crooks took the reins four months ago, after Shell bought the supplier.

Crooks hit out at bigger and smaller players alike, saying the model that allowed First Utility to grow to scale no longer existed. Smaller suppliers offered loss-making tariffs while the big six used customers on high-priced default tariffs to cross-subsidise cheaper fixed ones, he said.

The government’s imminent price cap on default tariffs was good because it would take away that ability to cross-subsidise, he said.

Crooks also welcomed the regulator Ofgem’s plans to make it harder for new players to enter the market. “It’s too unregulated at the moment, it’s too easy to get in,” he said.

A fifth of First Utility’s customers will be hit by a 5.9% price rise on 23 July, and Crooks said wholesale energy costs were continuing to march upwards.

“I think we all held back and as a sector absorbed a lot of the extra [wholesale] cost for a long time and have gone actually very late [with price rises]. The pain was felt way back.”

Crooks, a Shell staffer for more than two decades, said the oil firm’s acquisition of the supplier was “the first step on the long journey towards a large renewable power business”.

Asked whether the change of ownership would result in a greater emphasis on renewables, he said customers had so far been relatively indifferent to green energy.

Crooks is still considering whether to keep the First Utility name or rebrand as Shell, but is already taking advantage of the parent company’s reach. The supplier is being plugged at forecourts in Germany, and UK service stations are expected to follow.

Shell says it has no specific targets for First Utility’s growth, and wants to learn about the energy supply market. But Crooks warned the big six: “Certainly, we didn’t buy it to keep it small.”

 

Source : https://www.theguardian.com/business/2018/jul/08/first-utility-says-newer-energy-firms-will-go-bust

Smart Grid Bulletin August 2018


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