Small challenger energy brands may have been offered a “stay of execution” following the decision to defer up to £350 million worth of network charges, an industry expert has said.
Under the proposals announced earlier this week, companies who do not have an investment grade credit rating will be able to defer up to £1.6 million of charges until March 2021.
Andrew Perry, energy principal at Oliver Wyman, said avoiding multiple failures at once was akin to how the NHS has dealt with the pandemic.
Speaking to Utility Week, he said: “There is the risk of multiple suppliers going under at the same time and the best regulatory strategy is to spread that out and not be hit by a shock. It’s a bit like the NHS equation, you don’t want to hit the NHS with all the Covid cases at the same time, you want to spread them out. You don’t want to hit the market with multiple suppliers failing at the same time.
“Even if it is just a stay of execution, it has a purpose because it is drawing out the time over which some of these bankruptcies might occur.”
Since the start of 2018, 18 suppliers have been forced to leave the market through Ofgem’s supplier of last resort (SoLR) mechanism.
The financial impact of coronavirus is expected to hit challenger brands hard, with millions of customers facing a sudden loss of income, resulting in bad debt for retailers.
Lakis Athanasiou, a utilities analyst at Agency Partners, said he believes some smaller residential suppliers may well have extra time in the market thanks also to lower wholesale prices as a result of a global LNG glut which has in turn been accentuated by Covid-19.
“Those who decided to take a punt, and not hedge in line with the tariff cap, would be well in the money while those who hedged on the tariff cap will see higher wholesale prices and will be suffering”, he said.