Liquidity has become ‘primary concern’ for energy suppliers

Rising pressures in the energy retail market such as soaring wholesale costs have meant that liquidity has become a “primary concern” for many businesses in the sector, an industry expert has warned.

Andrew Stone, managing director at Interpath Advisory, spoke to Utility Week in a turbulent week in which power prices hit multiple new highs. Meanwhile, this afternoon, Ofgem confirmed that this year will once again see a shortfall in renewables obligation certificates (ROCs).

September and October have become crucial months for suppliers as deadlines loom for their annual payments, with missed payments often being in the past a precursor to market exit.

Stone, who also worked as joint administrator for recently failed supplier Hub Energy, said rising wholesale costs have meant this year’s challenges are “particularly acute”.

He said: “This time of year is always a crunch period for energy suppliers, but the challenges seem particularly acute this year.

“A perfect storm of soaring wholesale prices, more challenging debt collections and the increased cost of hedging have meant that liquidity has become a primary concern for many businesses in the sector.

“It is increasingly evident that a number of suppliers will be making use of Ofgem’s two-month grace period for making ROC payments, with some, such as Hub Energy, unfortunately already going through a supplier of last resort (SoLR) process.”

Several suppliers have already exited the market this year, with PfP Energy and MoneyPlus Energy both ceasing to trade earlier this week.

Last month the energy regulator confirmed the total UK obligation of more than 119 million ROCs.

Since then, suppliers have presented 105,263,447 ROCs towards this. The deadline to present the certificates was 1 September and those who did not meet their entire obligation through ROCs will between them meet the approximate 13,827,297 ROC shortfall through buy-out and late payments.

The deadline to make buy-out payments was 31 August, while the deadline for late payments is 31 October.

Ofgem added that it will confirm the amounts suppliers have made in buy-out payments, and what it has redistributed back to them, after it withdraws its administration costs next month.

It will then confirm the amount of late payments made by suppliers and redistributed, together with the recycle value for the 2020/21 period in either November or December.

The renewables obligation and mutualisation when suppliers do not pay have become major sources of contention in the sector, with compliant retailers having to pick up the costs.

As such in 2020 Ofgem unveiled a financial responsibility principle for suppliers to minimise the likelihood and extent of costs to be mutualised in the event of their failure.

Additionally earlier this year the Department for Business, Energy and Industrial Strategy (BEIS) introduced new arrangements to link the RO mutualisation threshold to the annual cost of the scheme.

If the new formula were applied retrospectively to the three obligation years where mutualisation was triggered, mutualisation would have only occurred twice.