Interesting news from the Energy sector. My colleague Nick Drew has written extensively on the problems in the Retail Energy market where over-regulation of the supply-side and consumer pressure from the demand end has led to a game where it is very hard to make any money.
Domestic supply used to be a real money-spinner, people have to pay their electric bills and if they did not there was in the old days the threat of a meter you would have to put coins in! Long gone are those days, now Uswitch and other services make it very easy to switch between suppliers and so the margins are disappearing very fast from the retail supply end of the market. In many ways, a good example of the market at work, destroying the business models of the oligopolies just as it should.
Of course, we have yin and yang in business. There are plenty of new entrants, funded by Private Equity and City institutions. who think they can come in and clean up where the old school has left off.
The result of the above is a deal announced over the weekend. SSE (Scottish and Southern Electric in old terms) is selling its retail business to newcomer Ovo. SSE just can't see the point when they are churning customers so quickly at moment. Ovo think their superior brand and service will overcome this.
Personally, I think the lack of loyalty or any incentive to be loyal to your energy provider makes playing the game on superior brand a very dicey one - but it is not my money so good luck to Ovo!
In the meantime, it will be interesting to see what the other of the old Big Six energy suppliers do with their low margin retail businesses - my guess is there is more divestment to come. They can then focus on generation where there are plentiful Government subsidies still to be found.