energy

UK gas crisis/Centrica: incumbents pick up the pieces of failed challenger policy

[ad_1]

UK energy updates

Challengers are meant to shake up incumbents and bring bracing competition to oligopolistic markets. Try telling that to British Gas owner, Centrica, obliged to pick up the pieces as Johnny-come-lately rivals implode amid spiralling gas prices.

Efforts to increase competition alongside counter-intuitive price fixing have failed on all counts. It’s déjà vu all over again, as baseball coach Yogi Berra allegedly said. The experience serves as a further warning on the peril of light touch oversight learned by the banking sector in 2008. Metro Bank, a challenger launched with much fanfare, has — like its share price — disappointed horribly.

New entrants come with plenty of pixie dust but can overlook the basics — in the case of gas newbies, that meant not hedging successfully against wholesale prices. That is fine when these are flat or falling; suppliers can make a trade from customer bills. When, as now, they are rising, new players get squeezed and face going bust. Hence the 350,000 customers from failed People’s Energy moving over to British Gas.

Emergency funds wielded by regulator Ofgem will cover the switch, rather than it falling to British Gas. The resultant surge in customers reverses years of declining market share, which dropped to just above one-fifth last year from almost a third five years earlier.

Problems on the top line were compounded by margin-crushing caps on energy bills introduced in 2019. Centrica, reduced to cutting costs and flogging assets, has seen its share price fall almost 90 per cent from a 2013 peak.

The implosion of challengers reverses Centrica’s run of bad luck. The ranks of UK energy suppliers have plunged from a 2017 peak of 70 to under 50. More will disappear. One of the largest, Bulb, with 1.7m customers, is already seeking emergency funding.

Further regulatory intervention is on the cards. This time that may be to the advantage of British Gas, given its enforced role as energy provider of last resort to stranded customers of defunct challengers. The incumbents are back and determined not to waste a good crisis.

Our popular newsletter for premium subscribers is published twice weekly. On Wednesday we analyse a hot topic from a world financial centre. On Friday we dissect the week’s big themes. Please sign up here.

[ad_2]

READ SOURCE

This website uses cookies. By continuing to use this site, you accept our use of cookies.  Learn more