UK power market hits consolidation as Brexit looms - Energy Management Summit | Forum Events Ltd
  • UK power market hits consolidation as Brexit looms

    960 640 Stuart O'Brien

    A major change is underway in the UK power market, with increasing competition, regulatory headwinds, growth in renewables and investors’ uncertainty in Brexit all playing a part.

    That’s according to research by GlobalData, which says a significant number of mergers and acquisitions (M&A) within the UK power sector has signalled a period of consolidation, along with over 10 electricity and natural gas suppliers folding their businesses within the last year.

    GlobalData says the smaller scale suppliers are most at risk, with some exiting the market after they failed to hedge the risks properly, and others falling prey to big players through M&A.

    “It is evident that companies will only be able to survive in this competitive market if they are able to achieve economies of scale,” said Ankit Mathur, Practice Head of Power at GlobalData. “The small players have provided an opening for large energy companies to diversify and enter the UK energy retail business.

    “For example, Shell Energy debuted into the UK energy market after acquiring First Utility in 2017 and recently proposed to acquire Green Star Energy. This proposed transaction along with announcements of Octopus Energy acquiring Co-op Energy, and Ovo Energy slated to acquire SSE Energy’s retail business, marks the third such announcement in the last three months that indicates the UK retail market is under a consolidation phase.”

    GlobalData says the UK’s Big Six energy suppliers (British Gas, EDF Energy, E.ON SE, npower, Scottish Power and SSE) have been badly bruised by the fierce competition from more than 60 smaller competitors offering cheaper and affordable prices.

    According to Ofgem, the Big Six companies have lost around 1.3 million customers and are serving just above 70 per cent of the domestic customers. Their cumulative profits tanked by 10 per cent and earnings before interest and taxes (EBIT) fell by 35 per cent in 2018 as compared to 2017.

    Mathur added: “The smaller companies in the next tier are boosting share; however, they are more prone to the risk, with some exiting the market. The new stringent entry requirements for new suppliers including tighter funding requirements, providing a customer service plan and passing a ‘fit and proper’ test may restrict new entry into the market.”

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    Stuart O'Brien

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