Energy UK: There is no cash down the back of the sofa

The crisis sparked by soaring gas prices has exposed “real vulnerabilities” in the UK retail market and sound suppliers are threatened with collapse, Energy UK’s chief executive has warned.

Emma Pinchbeck told the Business, Energy & Industrial Strategy (BEIS) select committee this morning (22 September) that she is “convinced” that the current market turmoil is “not one of the industry’s making” but has been caused by a combination of international price shocks and the way the market is designed.

Speaking ahead of this afternoon’s news that two more retailers have gone out of business, she said: “The crisis has exposed real vulnerabilities in the UK’s retail sector.

“There are features of the market’s design that make it very hard for suppliers to adapt to the current market situation.

“We have companies that are very well run and hedged that are worried, the retail sector makes negative margins which means that at time of price shocks they have nowhere to go.

“The sector is so fragile that people who might be expected to pick up customers are worried about doing so because of the cost: there is no cash down the back of the sofa.

“We need to look at why suppliers are loss making when they are doing the right thing,” Pinchbeck said, adding that well run companies are being affected by the explosion of gas prices.

“This is not to do with badly run businesses.”

She told MPs that for individual retailers it is “difficult to hedge against something this significant” and that the methodology of the price cap does not provide them with enough flexibility.

Ofgem chief executive Jonathan Brearley said at the same session that the regulator had seen some “unprecedented changes” over the last few months and that he expected to see more energy supply failures.

He said it would be “very hard” to put a figure on the overall number of supplier failures but that the regulator is “planning for a range of scenarios”.

Adam Scorer, chief executive of National Energy Action, said there is a strong correlation between households receiving universal credit and using pre-payment meters, a high proportion of whom are in debt on their energy bills.

“The universal credit uplift surely has to stay for longer,” he said, referring to the government’s plans to withdraw  the temporary £20 increase in the benefit.

Utility Week has launched its Energy Reset campaign, in a bid to ensure the current crisis results in real reform of the energy retail market.