However, the announcement of GB Energy ceasing trading last week demonstrates the challenges facing some smaller suppliers who may have adopted the riskier strategy of trading on the short term or even daily markets. Following a period of falling wholesale prices, GB Energy struggled in the wake of rising costs, as they looked to fulfil rates guaranteed to customers through fixed price deals.
Why all that glitters is not gold
There has been a surge of new entrants and challengers to the energy market in recent years. Whilst unquestionably, more choice and competition is extremely positive for consumers, the collapse of GB Energy demonstrates why there has never been a greater need for suppliers to ensure stable commercial strategies underpinned by the sufficient investment and the financial strength in order to survive. This would seek not only to safeguard consumer accounts, but also ensure best practice and responsibility within the industry.
In the case of GB Energy, who for three years since its launch had been offering some of the cheapest tariffs in order to quickly attract and secure market share, they have got their fingers burnt. Having rapidly accumulated 160,000 customers, the supplier has come unstuck, largely due to not forward-buying sufficient levels of its energy and in turn, making the business particularly vulnerable to the rising wholesale costs we’ve seen in recent months.
It’s fair to say that there has long been speculation and predictions that a smaller supplier would soon go bust in exactly this way. When you consider that in 2006, there were only 10 suppliers to choose from, including the big six, and now there are over 50, perhaps it was just a matter of time. What is incredibly important now however is that customers do not feel deterred from selecting challenger suppliers in the wake of GB Energy’s collapse, many of whom are delivering real impact when it comes to competitive tariffs, products, innovation and improved customer service.
Competition in the retail energy market must exist to serve the needs of customers, who want lower prices and a better service. They also want more than just a commodity from their supplier through product and service innovation, and the peace of mind of knowing that their energy company is safeguarding their future, as well as its own.
Perhaps an important take out from the example of GB Energy is that customers also should try, where they can, to look beyond simply low prices, to suppliers who are more established with good reputations, have been trading for a number of years and who are providing something extra. For example, Flow is a stock market listed company with strong financial resources and a robust, hedged trading strategy via our relationship with Shell – something which is not true of all challenger suppliers.
Firing on all cylinders for the future
In contrast to recent years when the big six energy firms held a monopoly, the UK market is now hugely competitive, due almost exclusively to the efforts of challenger suppliers and this must continue.
A recent Which? report highlighted that consumers are still spending £1.4bn more than they need to on gas and electricity utilities. On top of this, three quarters of households still haven’t been contacted by their supplier regarding changing their tariff in the four months since the Competition and Markets Authority featured this recommendation following its review of the energy sector.
This evidences the need for competition in the sector, yet the fallout from GB Energy threatens to unravel the good work being done by responsible challenger suppliers successfully delivering a great service to customers.
As a newer entrant to the industry, we’ve long held the belief that true competition in the retail energy markets means not just being able to operate under a regulatory framework, which enables healthy competition, but in delivering more than just a commodity to customers.
In much the same way we have seen the widespread benefits to consumers of challenger banks who have successfully gained market-share from bigger high-street stalwarts, the same can, and should apply to the energy sector if we are to deliver true value to customers.
As some smaller suppliers continue to feel the heat following the collapse of GB Energy, it’s clear that the business models of some may not withstand the surge and increasing volatility in wholesale prices. For those providers with robust business models who are sufficiently capitalised, this may be no bad thing when it comes to continuing to evolve a truly credible and sustainable challenger supplier option.