New year, same trend: Economy Energy exits the market

Economy Energy exiting the market on 8 January marked the first supplier failure of 2019 and the 12th domestic supplier exit over the last 12 months. The departure of Economy Energy follows continued speculation around the supplier’s financial health. Media coverage since December 2018 reported the supplier was working with KPMG to secure £5mn of inward investment before the end of January, alongside a £5m injection from Chief Executive Lubna Khilji. As with IRESA, which failed in July 2018, Economy Energy leaves the market under a provisional order from Ofgem, banning the supplier from taking on new customers, requesting one-off payments, or increasing direct debits until it resolves customer service and credit balance issues.

With 235,000 customers, this is the second-largest domestic supplier to go through the Supplier of Last Resort (SoLR) mechanism, behind Spark that exited in November 2018. Taken together, our Domestic Market Share Survey shows the 12 domestic market exits since January 2018 represent more than 1.5mn energy accounts, with 1mn of these processed through the Supplier of Last Resort mechanism in the last three months alone (see Figure 1). The larger customer books of some recent exits – including IRESA and Spark – have been taken on by fellow challenger brands. The inorganic growth from the Spark customer base cements Ovo’s position as the largest challenger brand in the domestic market. For Economy Energy, the large number of customers and high proportion of prepayment meters seem to make this SoLR an interesting proposition for acquisitive suppliers.  

Ultimately, the costs of this process are distributed across the market. Green Energy UK Chief Executive Doug Stewart criticised the process in the media on 7 January, stating it faces £21,000 costs associated with the “unpaid debts” of failed suppliers – equivalent to 7% of the supplier’s annual profits. Ofgem published its report on the SoLR process for IRESA, which implied the costs associated with its unpaid credit balances amounted to £70 per account for its ~175,000 energy accounts. As Stewart notes, the costs of this process can present a cashflow challenge for smaller suppliers – some of whom have already shown signs of potential financial pressures. This comes alongside upcoming payments under the mutualisation process expected for the 2017-18 and 2018-19 Renewables Obligation (RO) compliance period and the Q3 and Q4 2018-19 Feed-in-Tariff period.

Continued market exits – particularly of a supplier that has faced previous compliance investigations by Ofgem – and the growing focus on the costs of these exits, will only increase attention on the regulator’s ongoing supplier licensing review. Our Domestic Supplier Insight Service tracks developments in the domestic market, providing monthly updates on key regulatory and competitive activities. For more information, contact Jacob Briggs at j.briggs@cornwall-insight.com

Related thinking

Home supply and services

Consolidation in the energy market predicted to continue

It has been a turbulent time for the retail energy market, experiencing a period of consolidation with mergers and supplier exits. This supplier consolidation is expected to continue in the near term. If suppliers fail to shift their business models for the new world it is likely to continue, according...

Regulation and policy

How will consumers take to Market-wide Half Hourly Settlement?

Ofgem published its decision to implement the move to Market-wide Half Hourly Settlement (MHHS) on 20 April. This confirms plans to move to new settlement arrangements over a four and a half year time period, with the Elexon-led Design Working Group’s Target Operating Model to be used as the blueprint. Meters...

Regulation and policy

Ofgem raises modifications ahead of RCC and new switching arrangements

The latest edition of our Faster Switching Service Report due to be issued this week includes the latest developments in Ofgem’s Switching Programme and the associated Retail Energy Code (REC). Launched in November 2019, the Retail Code Consolidation (RCC) Significant Code Review (SCR) set out Ofgem’s intention to amalgamate the...

Regulation and policy

Calm before the storm? 2021 energy supplier compliance developments

The latest update to our Energy Supplier Compliance Portal went live on 4 May and includes changes to the compliance landscape during February to April 2021. While the previous quarter’s update reflected new principles resulting from Ofgem’s Supplier Licensing Review (SLR) and protections for prepayment meter customers facing self-disconnection, Q121...

Regulation and policy

Electricity transmission charging reform – overtaken by changing priorities?

Charging for the transmission network is never out of the development process for long. From major reviews, such as that initiated under Project Transmit in 2010, to significant reforms such as removing the triad benefit from distributed generation in 2018, and a host of smaller developments, change seems the only...

Commercial and market outlook

April showers bring DUoS for every half hour

Almost two years ago, Ofgem approved DCP268 DUoS Charging Using HH Settlement Data, which will move existing non-Half Hourly (NHH) settled demand customers onto time-based Half Hourly (HH) Distribution Use of System (DUoS) unit rate charges. With the modification to be implemented in the DCUSA on 1 April, we revisit...

Low carbon generation

New transmission charge forecast will help generators managing cost uncertainty and volatility

Transmission network use of system (TNUoS) charges represent a significant proportion of operating costs for many renewables generators, often exceeding 50% of annual running costs. For some, as recently highlighted by SSE in a recent report and to Members of the Scottish Parliament, they could present a barrier to investment in generation...

Business supply and services

Energy suppliers must be ready to demonstrate compliance with new principles

From 22 January, energy suppliers were required to follow new principles resulting from Ofgem’s Supplier Licensing Review (SLR), which initially kicked off nearly three years ago. Such was the breadth of the SLR, changes were introduced in two rounds, with the first round of changes bringing the introduction of tougher...