Monday 27 November 2017

When the Big 6 becomes Big 5

Over the years we've often suggested that the way government and regulators cheerfully beat up on the big 6 energy suppliers isn't terribly clever.  It's very handy for them to have big corporates to do their daft bidding in energy and climate-change policy; but simultaneously allowing them to be popular whipping-boys, and loading them up with onerous social and policy-delivery obligations, is inviting them ultimately to jack their hands in and step away from the table altogether.

It has also been clear that not all of the Big 6 necessarily have the financial stamina for the long haul, never mind the stomach for it.  Margins in the residential sector are lousy, and the risks are great.  Hanging on in there as a 'last-man-standing' strategy isn't a work of commercial genius.  (Though, since most of the suppliers are still engineer-heavy at the top, and with truly dreadful track-records on both customer service and, perhaps counterintuitively, IT - trust me on that latter, I've dealt with all of them - commercial genius isn't necessarily to be expected.)

Three years ago we noted that RWE / NPower / Innogy (pick you prefered brand-name) was occupying the bed closest to the door, and so it has proved.  They and SSE have had enough, and intend to merge their portfolios of residential energy customers and float them off.

Having reduced the competition at the big end of the sector by one sixth, will the government be inclined to think again, and cut them some slack?  I doubt it.  May seems determined on some kind of price cap.  Ofgem is ecstatic abut how many tiny new entrants there are in the residential sector, notwithstanding their very patchy performance, inherent financal weakness, and parasitic dependence on the Big 6 keeping the main show on the road.  (One of the canniest decisions Sadiq Khan has made was stepping back from a manifesto promise to set up a publicly-owned, fully-fledged London energy supplier.)

In all this mess, then, it's little surprise to see NPower and SSE look for an exit strategy.  Of the rest:  Centrica is, after all these years, still a remarkable survivor as a UK inde.  It had shrewd and genuinely commercial management from the day it de-merged from the old BG 20 years ago.  We've had issues with them over the years (check the Centrica thread from the tags below) but they're OK.  EDF's continuing to play the game is of course 100% strategic for the French based on making sure nothing prejudices Hinkley.   Right up until they decide that game's not worth the candle, either.  On paper, EDF is bust already if you factor in all their nuclear liabilities.  But the French government won't let them go under.  (Check the EDF tag too, for various C@W stories over the years - starting with this pivotal one from 10 years ago which explains plenty.)

That leaves E.on and Iberdrola (Scottish Power).  Neither are as strong corporately as they were when the turned up in the UK; and I can't see the UK being strategic for the Spanish.  E.on are corporately sharp, mostly clear-sighted, and can be quite decisive when it comes to restructuring.   But, EDF's special circumstances apart, they are the strongest of the lot.

Newby tiddlers notwithstanding, the landscape hasn't changed much for a decade, i.e. since EDF came to town in a big way.  I couldn't begin to guess what it will look like in 5 years.  But I can tell you electricity prices will be higher.



tolkein said...

All you need id three strong players, a weak 4th, who'll threaten to do something desperate to keep the other 3 in line PLUS credible threat of market entry by new players. Why I like the challenger banks. It's new entrants who bring better customer service, different pricing, rarely if ever the existing incumbents.

Anonymous said...

I'm with Tolkein on this.

You see this bunching in almost every market where the first three make the running. In fact you can see it every week in the Premier League where the top 3 make the running and the others are just there to fill the schedule.

If the PL League was reduced to 4 teams then it would be more reflective of the reality of the game and perhaps the hell that football supporters deserve.

MyYouWereWarnedName said...

Energy is going to zero.
By that I mean the price of energy is going close to zero.
Within a decade we will have reached this milestone.
Within 2 decades energy will be ostensibly free.

We are surrounded by free energy in the form of solar and/or wind.
As soon as the problems of capture (vestas etc), distribution (univ of Manc) and storage of intermittent generation (thank you Mr Musk) are solved the traditional energy 'providers' will die.

What you are now witnessing is the very early movement of investor cash from these companies to the new modality.

It is as unstoppable, as epoch-defining and as 'wild-west' as the Klondike or Ford Motor Company or IBM.

Dont be caught with your grandchildrens prosperity invested in blacksmiths, horse shoes and anvils.

Sebastian Weetabix said...

Oh dear.

Arts graduate? It won’t be physics or engineering, that’s for sure.

Nick Drew said...


well we should all avoid investing in duff shares

but that, I must say, is one of the most *interesting* comments we've had since (for my money) 2011

perhaps MYWWName will keep us updated on progress towards this golden future

just to mention one other perspective on exactly the same issues (i.e. greatly improved solar PV / SMR / wind / storage / hydrogen technologies coming along year by year), the worthy Energy Technologies Institute makes its datasets available for anyone to use

they are pretty *optimistic* about all manner of things (e.g. all of the above, + the feasibility of CCS, sustainability of biomass etc) that one could easily question - and even then, they can only get to the fabled 80%-reduction-in-CO2-by-2050 at great cost

and if those later two assumptions (CCS, biomass) turn out to be wrong, they say it's almost infeasible at any cost that would preserve living standards recognisably

but perhaps (despite all appearances) they are stuck in *conventional* thinking ...

Electro-Kevin said...

We're moving towards bicycles.

Well - being *pushed* towards them, Chinese style.

Rice, single-bed pods and bicycles are the future.

Those and virtual reality offices - goggles blue toothed to your phone and a virtual reality suit.

Such unilateralism in carbon reduction is entirely pointless faced with increasing consumption elsewhere on the planet.

Electro-Kevin said...

... salaries paid in virtual currency.

A little more optimistically:

Community owned machines designed to do dentistry and operations - richer homes will have their own.

Shove in a few materials - go to a website for a design - out pops a dress.

Meat will be 'test tube' grown. Chuffing great slabs of chicken breast living without the chicken. Change the process to turkey for a few days before Xmas.

And voluntary euthanasia. It must come.

This is all assuming our society doesn't disintigrate into some 15th century hell because of a reversion to religious fundamentalism.

What I suggest about science doesn't sound too appealing, I admit but *meh* is better than hell, surely.

BlokeInBrum said...

And here was I thinking that free unlimited nuclear power was going to transform the energy market, with energy so cheap that you wouldn't have to meter it!

Unlimited energy through Fusion technology has been on the cusp of availability for the last 50 years, they really should have Elon as its spokesman.

As an aside, take a look at the ITER web page, even to my simplistic way of thinking,
any piece of equipment that requires 10 thousand tonnes of superconducting magnets is going to be on the very margins of economic sustainability, and thats even if they get it working.

Our arts graduate above really needs to take a look at Worstalls blog if he really wants to get a clue.

Electro-Kevin said...

BiB - I think my comments were an overly clever way of saying that the energy policy is a *lowering of expectations*.

Anonymous said...

The key for domestically free energy will be if we can generate enough of our own and come "off-grid" which also needs sufficient storage as well as generating capacity.

Anyone mining bit coin will probably have to stay "on-grid"!

Nick Drew said...

Anyone mining bit coin will probably have to stay "on-grid"

depends: if it's one of those uses of elec that can switch on and off without undue problem, they might be able to run off a local wind-generator, or daylight-only solar PV

but maybe they are more like a data centre - the least flexible load you'll ever find

anyone know?