Smaller suppliers would be ‘mad’ not to question future in retail market

Energy suppliers outside of the largest seven would be “mad” not to question their future in the domestic retail market after the recent turmoil, an industry expert has suggested.

Ellen Fraser, energy retail partner at Baringa Partners, was speaking to Utility Week following the spate of supplier failures this year due to soaring wholesale costs.

Just eight players, including Bulb which entered administration this week, currently hold a 91% market share.

Fraser said now that Bulb has entered the special administration regime (SAR) all the others in the top tier are relatively well positioned to stay longer term, but most of the rest are “very much up for grabs”.

She said smaller suppliers should be asking not just “whether they can survive in the market, but whether they actually want to survive in the market;” whether they are “going to have to take so much of a loss that the payback period is not worth it.”

Fraser suggested some players could exit by selling their customer books (at a loss) or by winding down the company and entering the supplier of last resort (SoLR) process.

She continued: “There are a few players there outside of the big 7 who would be mad not to consider their position in the market. Some will have big hedges, which is great as they are valuable, but some may also have large exposure. If they are 90% hedged, that 10% delta is really expensive.

“Their churn assumptions will have gone out the window, there are a number of planning assumptions that have unwound quite rapidly and it’s therefore a question for them in terms of whether they see a route to profitability in the longer-term.

“The key question is around whether having an energy retail business is genuinely a big stepping-stone in terms of being involved in net zero. I think there is a degree of uncertainty around that.”