Utility Week review of 2018: Energy retail

As we rapidly approach the end of the year, the Utility Week team looks back at some of the highs and lows for utilities.

Energy retail

By Adam John, reporter

“Take a tough market, add a price cap…”

2018 will be remembered for a number of key events in the energy retail sphere, namely the confirmation of the energy price cap and the influx of failing energy suppliers.

A total of eight suppliers ceased trading this year including Iresa, Spark, Extra, Usio, Future Energy, Gen4U, One Select and Snowdrop all closed for one reason or another during the year.

Pressure from the market was perhaps the strongest nail in the coffin of these suppliers, while firms like Iresa were subject to a number of investigations by the energy ombudsman.

The pressure was perhaps most clear when Ofgem released the names of suppliers who missed the 31 October late payment deadline for their renewables obligation (RO) payments.

Initially an “unprecedented” 34 suppliers missed the original 1 September deadline, of these 14 missed the final payment deadline which resulted in a £58.6 million shortfall.

Extra, Future Energy, Gen4U, Iresa, Snowdrop and Spark were among the 14.

The shortfall resulted in mutualisation being triggered for the first time ever, meaning compliant and partly complaint suppliers will have to pick up the bill.

In September Ofgem announced it was making “full use” of its powers to set the level of the energy price cap, a measure it says will benefit 11 million households on poor value default tariffs by saving them £75 on average.

Ofgem later announced the level of the cap would be set at just £1 higher than planned when it confirmed the final price of £1,137 in November.

The temporary cap is due to come into effect on 1 January and the first update of the level will be announced in February 2019 and come into effect in April 2019. It will then be updated every six months.

The proposed merger between energy giants SSE and Npower was expected to see the big six become the big five after the Competition and Markets Authority (CMA) gave the green light in October. The deal was called off earlier this month.

In November Npower’s parent company Innogy SE announced that adjustments were being made to the merger due to “adverse developments in the UK market” and regulatory interventions such as the price cap.

The development was denounced as a “shambles” by some industry analysts whose predictions it could throw the whole deal into doubt have since been proved correct. At the time Alistair Phillips-Davies, chief executive of SSE, maintained that the company continued to believe that “creating a new, independent energy supplier has the potential to deliver real benefits for customers and the market as a whole” and this remained the objective.

SSE said it was unlikely that completion of the deal will be delayed beyond the first quarter of 2019, but all work to “seek to achieve the formation and listing of the new company will continue”.

The company has now confirmed it is in discussions with the designated board members for the proposed new energy retail company, which was expected to be created with the now scrapped merger between SSE Energy Services and Npower.

In April Katie Bickerstaffe was appointed as chief executive designate of the new company.

“Appropriate arrangements” were agreed at the time of her appointment to compensate her in the event of the transaction not going ahead.

Bickerstaffe has served as a non-executive director at SSE and has previously worked for international consumer-focused corporations such as Dyson, PepsiCo and Unilever.

She was going to be joined in the new retail company by chairman designate Martin Read and Gordon Boyd, who was appointed as chief financial officer in June.

Finally, the smart meter rollout continues to amble along.

A recent report by the National Audit Office the government’s original ambition of offering a smart meter to every home by 2020 will not be met, whilst the cost of the rollout will likely “escalate beyond initial expectations”.

According to the latest figures almost 12.8 million meters are now in operation while 14.7 million smart and advanced meters have been installed in homes and businesses by both large and small energy suppliers – around 13.64 million (93 per cent) of these were installed in domestic properties and just over one million in smaller non-domestic sites.

The rollout continues to be criticised by a number of industry voices, with many concerned about the interoperability of first-generation SMETS1 devices when a consumer switches supplier.

The Data Communications Company (DCC) however says it has since successfully demonstrated the interoperability of a SMETS1 device, a “significant milestone” as it continues to upgrade its central network in time for the 2020 deadline.

Customers with SMETS1 meters are expected to see their smart capabilities restored once they are connected to the DCC’s network, a process which will happen automatically.

Angus Flett, chief executive of the Data Communications Company, said: “This confirmation represents a significant milestone in our work to migrate millions of SMETS1 meters onto the DCC’s secure network.

“Coupled with the rising numbers of second-generation meters being installed each day, real momentum is building behind this major transformation of Britain’s energy system.”

Suppliers had up until 5 December to install SMETS1 devices but seven million more SMETS1 devices have been installed than was planned, adding to the rollout’s significant challenges.

2018 will certainly be a memorable year in the energy retail sector and 2019 looks like it will be more of the same.

Read Utility Week’s full round up of 2018 here.