Network payment holiday risks creating ‘zombie energy suppliers’

Plans to give struggling energy suppliers payment holidays on their network charges risk creating “zombie” retailers, an industry observer has warned.

On Wednesday (20 May) the Financial Times reported talks were underway between Ofgem and energy retailers over plans to allow suppliers breathing space of up to three months to help them through the pandemic while networks would absorb some of the financial impact.

Neil Cornelius, managing director at global consulting firm Berkeley Research Group (BRG), warned such plans could risk retailers building up additional debts.

Cornelius, who was previously a partner at Deloitte, believes a network payment holiday, unless suitably structured, would not seem to target support on those that most need it, such as those with more business customers. He instead suggested an industry-wide approach funded by a levy on future energy bills and based on specific assessments of need for each company.

He added: “Whilst we don’t have details of the scheme, the main concern would be that it risks the creation of ‘zombie’ energy suppliers. The network charges are a significantly higher proportion of electricity bills than the typical margins on energy supply for nearly all energy suppliers. Energy suppliers could therefore rapidly build up additional debts that are large relative to their future profitability, particularly because it would seem optimistic to assume that this issue will only last three months.

“We therefore risk a situation where multiple energy suppliers have debts to the network companies that they are not realistically going to be able to pay back, a problem for the management of both suppliers and networks.”

Meanwhile Juliet Davenport, founder and chief executive of challenger brand Good Energy, said it was right that costs did not fall entirely on energy suppliers.

“This temporary measure could provide some breathing space while the sector adapts to the ongoing upheaval. The devil will be in the detail and we need to ensure the consumer is protected from rogue suppliers who would use this policy as a stay of execution,” she said.

A spokesperson for trade body Energy Networks Association would not comment on the specifics of the discussions but said it was engaging regularly with Ofgem during the pandemic to ensure customers are supported as best as possible.

“As the pandemic continues, we will continue to review what services and support is available, in the best interests of energy customers,” they added.