Supplier says rising wholesale, policy and regulatory costs "masked" significant savings

Npower failed to return to profit in 2016, posting an operating loss of £90 million, as another 70,000 household customers left the supplier.

The poor performance came despite an overhaul to the business announced last year, which included a major cost cutting drive.

Npower said the “substantial savings” already achieved through these efficiencies were “masked” by rising wholesale, policy and regulatory costs.

The results marked a 10 per cent on improvement on 2015 when Npower posted an operating loss of £99 million. However, the operating loss still compared poorly with performance in 2014 when the company made a £183 million operating profit. Revenues in 2016 were down by £922 million – or 13 per cent – year-on-year at £6.1 billion.

Problems with customer service and billing systems led to an exodus of household customers in 2015, as Npower lost 350,000 domestic accounts – seven per cent of its customer base.

Such losses were largely stemmed in 2016 with account numbers falling by a comparatively small amount – 70,000. This represents a one per cent year-on-year decline and took Npower’s customer base to around 4.71 million. Complaints also dropped by nearly a half in 2016 to just shy of 340,000.  

In the B2B energy market, the number of SME customers on Npower’s books declined by around 20,000 in 2016 to 180,000, having fallen by around 10,000 the year before. Industrial customer numbers were unchanged at roughly 230,000.

 “In 2016 we took the first strides forward in changing the course of Npower in an intensely competitive and difficult market environment.  That environment won’t get easier, so we absolutely need to carry on getting better,” said Npower chief executive Paul Coffey.

“We made clear operational improvements that enabled us to both save money and to improve our overall performance. From being a consistent outlier on subjects like complaints, we are now ranked in the middle of the table.  The recovery plan we outlined a year ago has enabled us to make substantial savings already, and we expect considerably more to come in 2017.”

Coffey said the supplier’s performance was hit by “considerable” increases in wholesale costs in 2016, “particularly later in the year”, as well as growing policy and regulatory costs. “These expenditures masked the operating cost improvements implemented last year and therefore we partially reflected these increased costs in the price increase we announced in February.”

“All this is just a start,” he added. “We are in a much stronger place than 12 months ago to respond and compete within the current uncertain environment and numerous challenges within the energy market in Britain.”

On 16 March, Npower is due to go ahead with a 9.8 per cent price rise for its standard dual fuel tariff.

The hike was the first in a string of price increases announced by and range of suppliers in the early part of this year. It met with strong criticism from government and consumer groups, but Npower insisted it was necessary to compensate for rising supply costs.


Meanwhile, Npower’s overall parent company, the German energy giant RWE, has revealed 23 per cent drop in adjusted earnings before interest, taxation, amortisation and depreciation (EBIDTA) in 2016 to €5.4 billion.

Adjusted earnings before interest and taxation (EBIT) were down nearly 20 per cent at €3 billion and revenues fell by almost five per cent to €45.8 billion.

The main reasons given for the decline in profits were contracting margins in conventional generation, losses from group’s trading arm and the absence of one-off earnings the previous year at Innogy.

The group posted an unadjusted net loss of €5.7 billion largely due to write-downs totalling €4.3 billion on its generation portfolio and a €1.8 billion reduction in earnings relating to the restructuring of responsibilities for nuclear waste disposal in Germany.

RWE said it expects to acheive adjusted EBITDA of between €5.4 billion and €5.7 billion in 2017 and an adjusted net income of between €1 billion and €1.3 billion.


Adjusted EBITDA at Innogy – the group’s renewables, grids and supply subsidiary which includes Npower – fell by 7 per cent to €4.2 billion and adjusted EBIT dropped 10 per cent to €2.7 billion. This was partly down to earnings from the renewable arm “falling sharply” due to low winds in the second half of the year. 

The company began operating independently in April last year and in October RWE completed the spin-off with an initial public offering on the Frankfurt stock exchange. More than 55.5 million new shares were issued to investors and RWE sold off a further 73.3 million to reduce its stake in the company from 100 per cent to 76.8 per cent.

Earlier this week Bloomberg reported that French energy firm Engie is mulling an offer for the Innogy. RWE declined to comment but said it “can in principle sell Innogy shares and thereby reduce its stake to 51 percent.”

What to read next