An industry divided

It’s set to go down as the industry’s most divisive issue of 2019 – not Brexit, the energy price cap.

The government policy on default tariffs has polarised energy retail opinion, caused some dramatic fallout, and it isn’t yet a year old.

This week it felt like it was back in the news once more as the chief executive of Eon UK – the supplier set to inherit Npower’s domestic customers – faced the cameras to confirm a significant number of UK jobs were going at the beleaguered retailer.

The cutbacks, as part of a two-year programme, are “absolutely critical” to sustain its future, explained Michael Lewis, while pointing to a UK energy retail market experiencing “considerable strain”.

While Npower has other historic issues, the culpability of the price cap was also implicit in his words.

It was the cap that was cited for undermining Npower’s proposed merger with SSE only a few months ago, and more broadly, since its introduction on 1 January this year, it has played a leading role in other market drama – incumbents haemorrhaging ­customers; ­Centrica’s legal challenge to the regulator over how it is ­calculated; and SSE’s sale of its retail arm to Ovo.

Throughout it all, Eon’s boss has been one of the cap’s most vocal critics. He warned Utility Week Congress in the October before its introduction that, while he accepted “parliament had spoken”, it was critical this intervention was “workable”, paying due regard to operational costs and headroom.

Not all companies have the same customer base, he said, adding that a higher cost to serve customer mix could make it increasingly hard to hit Ofgem’s benchmarks.

The hindsight of 11 months makes that plea to the regulator now sound positively predictive.

It was a theme picked up by Energy UK director Audrey Gallacher during an industry debate in September, who said up to 10,000 jobs were expected to be lost in energy retail before the end of the year as industry struggled to adapt to the price cap.

Compare this with the conviction of those players who see the cap as “absolutely working”, the takeover of SSE by a strong newer entrant as a positive; and increased switching a testament to how competition is changing old norms, and you have a highly divided market.

Debate will continue about when the “temporary” cap will end; if new legislation will extend it; what a “son of price cap” might look like; and if the market has been revolutionised or damaged irrevocably.

Predicting 2020 just got harder.