Vattenfall made decision to ‘go big or go home’

Vattenfall ultimately did not gain the scale required to make its venture into the UK energy retail market worthwhile, industry experts have said.

The Swedish state-owned renewables giant confirmed this week it had sold more than 190,000 customers of its iSupply Energy business to EDF in order to focus on its core activities of renewable generation, heating, business-to-business sales and electricity distribution.

Nigel Hawkins, utilities analyst at Hardman & Co, told Utility Week that iSupply “did not have much of a base” and that 190,000 is small when compared to other challenger brands such as Ovo Energy which recently bought the customers of SSE.

Hawkins added: “It’s quite difficult, I would suggest, to make any decent money now on supply unless you’ve got an inherited base, which some of them have. And even SSE, with an inherited base decided it wasn’t really worth the gamble. And so, it went to Ovo.

“Vattenfall’s decision would have been: do we spend a great deal of money to get up to a million – or whatever it is – or do we say we’ve got a better use for our funds?”

Furthermore, Hawkins said, Vattenfall will now probably feel planned investments in the Netherlands and Germany are a better area of investment, especially considering the difficult conditions faced by many retailers in the UK market.

“I think they probably feel that that is a better use of their funds, rather than getting involved in what is quite a difficult market in the UK, with: 1) the price cap; 2) a lot of competitors; and 3) the nearly monthly bankruptcy of at least one competitor”, he added.

Another industry source agreed and said Vattenfall was testing the market, looking to “go big or go home”.

The source said: “Vattenfall might have wanted to back away ultimately, they only had a small foothold. I think it’s the kind of thing where Vattenfall wanted to go big or go home.

“I assume this was a foot testing the market for them – gaining an understanding of how the UK market works to give them a view after a number of years.”

Despite Vattenfall’s ultimately negative view of the market, the source said that EDF’s acquisition of iSupply’s customers sent a positive message that companies are willing to keep investing in the UK retail sector.

EDF has been acquiring hundreds of thousands of customers recently through the supplier of last resort (SoLR) process. In October last year it was appointed by Ofgem to take on the 134,000 customers of failed supplier Toto Energy while in August the regulator appointed it to supply the 8,000 customers of Solarplicty.

The source added that acquiring more customers would help the energy giant with its fixed cost base.

While no figure has publicly been put on the expected transaction, another industry insider told Utility Week that Vattenfall will be happy to exit the retail market.

“I think they would have almost accepted any amount of money to get rid of it.”