A challenger UK energy company that only launched a decade ago has warned that newer, smaller suppliers are operating a “house of cards” model that will collapse and see firms go bust.
Colin Crook, chief executive of First Utility, said that many firms that have followed in its wake were undifferentiated and exposed to volatility in wholesale prices.
“I do think we’ll see some failures … some suppliers are struggling at the small end,” he said.
Crook cited Flow Utility, which he said was “basically bankrupt” when mid-sized supplier Cooperative Energy recently bought it for £9.25m.
“There’s a lot of small suppliers playing exactly the same game … I just see this house of cards actually tumbling down,” he said.
First Utility is the eighth biggest supplier with 825,000 customers, behind Ovo with 1m and the big six who control 80% of the market. Crook took the reins four months ago, after Shell bought the supplier.
Crook hit out at bigger and smaller players alike, saying the model that allowed First Utility to grow to scale no longer existed. Smaller suppliers offered loss-making tariffs while the big six used customers on high-priced default tariffs to cross-subsidise cheaper fixed ones, he said.
The government’s imminent price cap on default tariffs was good because it would take away that ability for bigger firms to cross-subsidise, he said.
Crook also welcomed regulator Ofgem’s plans to make it harder for new players to enter the market. “It’s too unregulated at the moment, it’s too easy to get in.”
A fifth of First Utility’s customers will be hit by a 5.9% price rise on 23 July, and Crook said wholesale energy costs were continuing to march up.
“I think we all held back and as a sector absorbed a lot of the extra [wholesale] cost for a long time and have gone actually very late [with price rises]. The pain was felt way back.”
Crook, a Shell staffer for more than two decades, said the oil firm’s acquisition of the supplier was “the first step on the long journey towards a large renewable power business.”
But asked if the change of ownership would see a greater emphasis on renewables, he said customers had so far been relatively indifferent to green energy.
Crook is still weighing whether to keep the First Utility name or rebrand as Shell, but is already taking advantage of the parent company’s reach. The supplier is being plugged at forecourts in Germany, and UK service stations are expected to follow.
Shell insists it has no specific targets for First Utility’s growth, and wants to learn about the energy supply market. But Crook warned the big six: “Certainly, we didn’t buy it to keep it small.”