I have been writing recently about the need for radical reform of the retail energy market, and predicted that this autumn would see more supplier failures. Today, another two energy suppliers announced their closure today: PfP Energy (formerly Places for People Energy) based in Preston, and Salford-based MoneyPlus Energy. PfP supplied around 80,000 domestic and 5,000 non-domestic customers, while MoneyPlus supplied around 9,000 domestic customers.
This brings the failures so far in 2021 to five after Hub Energy closed in August, and Green Network Energy and Simplicity Energy both exited the market in January. More failures are likely as wholesale gas and electricity prices have doubled in the past year.
As smaller suppliers struggle to access hedging – partly due to strict credit requirements which they can find difficult to meet and partly because their smaller customer numbers mean the volumes they need to trade to hedge their daily shape can be smaller than the market will accept. The credit issue is particularly acute, and becomes even more difficult as prices rise and collateral requirements increase. Some supplier CEOs have reported privately being asked to put their homes up as security.
Last month Ofgem announced it was increasing the retail price cap – some of the drivers of this increase are also responsible for the financial difficulties of suppliers, and they are also bad news for their customers. PfP and MoneyPlus customers will now be transferred to other suppliers – Ofgem is yet to announce the SOLRs – but customers on fixed price contracts will find themselves facing much higher prices as their fixed price deals are unlikely to be honoured by the SOLR due to the steeply rising prices.
As many challenger suppliers offer loss-leading deals in order to build market share, some of these contracts would have been significantly out of the money. Across the market, suppliers are increasing prices in response to wholesale market trends, with some suppliers offering fixed price deals above the level of the price cap (which only applies to variable default tariffs).
The sharp price increases are hurting consumers, many of whom have little understanding of the drivers of bill increases. Supplier price rises are described as “inflation-busting” by a sensationalist press, while a petition for suppliers not to pass on “Ofgem price rises” has garnered tens of thousands of signatures.
Rising market prices spell trouble for struggling suppliers
Gas prices in the UK have reached 130 p/th, more than four times higher than this time last year, driven by market tightness and low storage levels – gas in storage in Europe is significantly below the five-year average. While electricity prices have been boosted by a high gas and carbon prices and unexpectedly low wind generation – wind has been contributing as little as 5% of demand in the past week, compared with an annual average of 18%. Several power stations are also offline for maintenance, carrying out works delayed from last year due to covid. Coal plant has been dispatched to meet the shortfalls.
“There are not many power plants available to come on today so we’ve seen the prices for peaking power jump. When the market is this finely balanced a very small difference in availability can make a very big difference in price,” – Rob Lalor, director EnAppSys
Balancing market prices reached £4,950 /MWh with coal units at Drax and West Burton firing up. Imbalance prices reached £3,400 /MWh.
In July National Grid ESO indicated that it expects winter 21 to be tighter than last year. Extended cold periods this winter could see prices pushing even higher, and the prospect of more Capacity Market and Electricity Market Notices. Life could become very difficult for suppliers. Next month is the late payment deadline for the Renewables Obligation – normally a stressor for struggling suppliers…. More are likely to cease trading before the end of the coming winter.