What’s left in the domestic green energy supplier sphere?
Back in 2017, I wrote a piece on a new ethically-minded energy supplier, Brighter World Energy, entering the market (who had a policy to funnel some of their profits into setting up small scale solar rigs in Africa). At that time, new suppliers were popping up like popping popcorn; the market was being flooded with new entrants.
However, only a year or so after that, Brighter World Energy ran into difficulty and were taken on by Robin Hood Energy (a not-for-profit energy company launched in September 2015 by Nottingham City Council), who later themselves got into trouble and were consumed by monolithic British Gas (through Ofgem’s safety net process).
Back to the present and following the rebound in the economy and consequent energy demand surge post lockdowns, combined with a longer winter in 2020-21 that left gas stocks depleted and a tightening of supplies from Russia, the landscape has very much changed.
The full bag of utility company popcorn is now very much depleted and although at the time of writing we have seen quite a lot less coverage in mainstream news headlines, utility companies are still going into administration. In 2021 up to the beginning of December, almost 30 energy utility companies had ceased trading in the UK, and this from a total of 71 companies at the beginning of the year. Additionally, Bulb Energy has been placed in Special Administration. We should start by saying it is clearly sad to see the demise of so many, given the impact this will have on both employees of these companies and customers alike.
Earlier thoughts from British Gas
Pre-energy price surge, I watched the Chief Executive of British Gas on a TV news programme who was being drilled as to why their tariffs were so much higher than many of their competitors, especially by those of the smaller newer companies. It seemed to me at the time, that British Gas were taking advantage of their dominant position in the market (although not as dominant as it once had been). With a sizeable number of customers remaining with them and loathe to or unaware how to switch, they could charge towards the higher end of the price spectrum.
He said that he couldn’t understand how these smaller companies could maintain such low prices and thought this to be unsustainable (price wise). He went on to say that if these companies ran into difficulties, other larger more prudentially run companies like British Gas would then be tasked with picking up and looking after those customers. British Gas he said, couldn’t afford to take those risks – who would pick up British Gas if they were to fail? At the time I thought he was just deflecting the question, whilst now I see things in a somewhat different light. So, with many of the smaller new entrants competing aggressively on price whilst not “hedging” [1] effectively against the energy they were committing to provide, any shock to the energy market system has had the almost inevitable consequences we have seen.
Ofgem – its safety net and the impact of the price cap
For companies that run into difficulties, the safety net of the market regulator Ofgemis in place to maintain supplies and protect credit balances whilst ordinarily it moves the affected customers to a new supplier.
However, it is worth bearing in mind that Ofgem’s price cap itself has been a factor pushing some providers into financial distress. The cap, which applies to approximately 11 million customers, only limits the unit rate and standing charge that suppliers can charge on default Standard Variable Rate (SVT) tariffs and not the total cost of energy used in a year. This has meant suppliers have not been able to pass on the increase in wholesale gas prices to customers, resulting in a financial shortfall. Ofgem’s approach in this regard might be considered as something of a double-edged sword.
Green energy suppliers
Providers with an emphasis on green or renewable energy have enjoyed an improving market share in recent years, although are not immune to industry challenges. We’ve seen Bulb, one of the largest suppliers claiming green credentials with 1.7 million customers, go into ‘special administration’ (for the time being the company is being run by an administrator rather than customers being moved to a new Supplier of Last Resort) in late November 2021.
So, what green oriented domestic energy supplier choices are now left for consumers and of those, which ones are likely still going to be around in the foreseeable future? By virtue that the ones remaining are still in operation, it follows that these companies have perhaps been more prudentially run than their counterparts which have gone into administration.
But when shopping around, buyer beware that not all “green” energy suppliers are created equal. Ofgem even provides some suppliers with awarded exemptions from the price cap for their SVTs, due to their tariffs demonstrating three specified outcomes which directly target support for green energy [2]. This means that these suppliers can set their default SVT prices above the cap price - so you may be paying more for your energy but are safe in the knowledge that they are at the top of their game towards sourcing renewable energy.
As ever, it is worth doing your research and comparing providers using verifiable and independent consumer sources, such as Ethical Consumer, Which? or Uswitch for example.
If you have been unfortunate enough to have been with an energy company which has run into difficulties, you can still switch to another company. It is worth bearing in mind that if you are looking for a new fixed tariff, these are not subject to the price cap, whilst the norm is that they now cost more than the equivalent default SVT you may be on. If you have a particular interest in a new supplier, it is worth doing as much research as you can into their financial position first, whilst being assured that you are still covered by Ofgem’s safety net should anything go awry.
References
[1] Hedging is the practice where the supplier buys its energy in advance of delivery and effectively locks in the price it will pay.
This is not an offer or a solicitation to make an investment. It does not constitute a personal recommendation and recipients must satisfy themselves that any investment is appropriate in the light of their own understanding, appraisal of risk and reward, objectives, experience and financial and operational resources. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research.