Reason for suppliers going broke ?

dogshome

Had a look at Nord Pool, which is the major clearing house for auctioning generated electricity across Europe, with the power sold in MGW blocks, ( 1000 Kwh ) , priced to the time of day
I don't pretend to understand all the tech data on the site, but the 'Next day Auction Prices', gives an average price for each day in the month going back for a year, and that shows prices nearly Doubling, and in some cases Quadrupling over this winter.

28th Jan 2020 £36.18 =  0.036p a Kw ......28th Jan 2021 £58.49 = 0.58p a Kw

15 Jan 2020  £32.46 = 0.032p a KW ........15th Jan 2021 £154.62 = 15.46p a Kw !

It's no wonder that the 'We are cheaper' suppliers have been falling off the tree when they have issued 12 month Fix contracts that cannot be sustained at the Buying-in prices, and I suspect there will be a few more to fall.

Only my speculation, but I suspect Covid is to blame - With shut downs of public venues and businesses across Europe, there is more power being generated than can be used, but the costs of keeping the generators running must still be paid, so what is sold just becomes more expensive

Gerry1

dogshome said:

28th Jan 2020 £36.18 =  0.036p a Kw ......28th Jan 2021 £58.49 = 0.58p a Kw

15 Jan 2020  £32.46 = 0.032p a KW ........15th Jan 2021 £154.62 = 15.46p a Kw !

Think you've been a bit fat-fingered with your decimal digitry...

...and the h key !

MWT

dogshome said:

Only my speculation, but I suspect Covid is to blame - With shut downs of public venues and businesses across Europe, there is more power being generated than can be used, but the costs of keeping the generators running must still be paid, so what is sold just becomes more expensive

Do a little research on where the power we are currently using is being generated and the price increase will make more sense.

Right now solar and wind is very low and for various reasons, some Covid related, nuclear power is very low as well, so overall we are dependent on more expensive sources such as coal/gas.

Grumpy_chap

dogshome said:

Only my speculation, but I suspect, there is more power being generated than can be used, but the costs of keeping the generators running must still be paid, so what is sold just becomes more expensive

If your speculation were correct, surely glut of supply and low demand would mean lower price?

Maybe more electric heating in many homes than office?

dogshome

I bow to Gerry1's correction of the 28th Jan 2021 price - Should be 0.058p a Kwh - but it's still a 61% increase on the Jan 2020 price.

As our world depends on the constant supply of Electricity, it's not an industry that can say, " The customer doesn't buy enough of our product to meet the overheads, so we'll just close down and go home"

Covid has shut down many businesses across the whole of Europe, but homeworkers running  laptops, making cups of tea and heating their homes for a few hours longer, can in no way can make up for the power consumption of a fully functioning society, hence the price rises to keep the generators in business.

Forget the trumpeting that the UK only used GREEN energy for XX days, we are not 100% self sufficient in Electricity supply and on days when when plant goes down and/or the wind doesn't blow, power is imported from Europe via under-channel cables

The Joke - During Brexit negotiations some EU bright Spark threatened that they would cut off the under-channel power supply, it took them all of 2 days to realise that it was a two way street and they could not do without the power supplied by the UK via these cables

Grumpy_chap

dogshome said:

Covid has shut down many businesses across the whole of Europe, but homeworkers running  laptops, making cups of tea and heating their homes for a few hours longer, can in no way can make up for the power consumption of a fully functioning society, hence the price rises to keep the generators in business.

Reduced demand but constant supply resulting in increased price goes entirely against all the rules of supply and demand.

That scenario already exists at night time when, for those with variable tariffs, very low cost electricity can be available, for example to charge the EV.  Low demand + constant supply => low cost.

I think the heating demand for domestic premises versus offices would be surprisingly high.  I accept most of that energy is likely gas or fuel oil, but a good proportion still electric.  In an office, one person say 100 sq ft, allowing for desk space plus communal areas.  In a house, 3 or 4 bed semi, say 2000 sq ft, typical inter-war build, with 4 people in all day, so heating 500 sq ft per person, a five-fold increase.

macman

Higher domestic demand, lower commercial demand. The small challenger suppliers cannot afford to buy forward on the same scale as the established suppliers, who also tend to have big commercial arms too. Come the winter, and, if they got their demand estimates wrong, or the weather is colder than forecast and pushes up demand, then they are going to be in trouble as they are forced to buy on the spot market at  prices far higher than they sold at
It's also about economy of scale. Simplicity had just 60,000 customers. Just too small to make it work with margins in the industry maybe 5% at best. Almost all the smaller suppliers (those below 100,000) seem to last little more than 2 or 3 years, unless they grow by acquisition.
What's curious is that there seems to be no shortage of start-ups who still believe that they can turn a profit, despite the evidence of the failure rate. 26 went under in 2020, if you count all the Robin Hood Energy white label operations separately. Maybe it's time that Ofgem set the entry bar higher?

sonofmerton

i was told that with so many unable to pay their bills due to covid and that these smaller companies work on small profits the 'rule of 10/100 has come into play'. ie 100 customers profit is wiped out when 10 don't pay. sounds feasible.

FaceHead

Day ahead prices just aren't what energy companies pay. They buy a tiny amount of energy the day ahead, and on the day, and after the fact, to match what they've bought to their customers' demand. 

In reality all the big companies buy energy around an average of 2 years ahead with exactly how much and when they buy a closely guarded secret.  That ties up a lot of cash (they basically put a deposit down with the exchange to cover price a potential fall in price of what they've committed to buy). Small companies have less cash, so buy less far in advance. 

When prices fall, big companies are left trying to shift expensive energy they bought years ago, so people flock to small suppliers who lock them into a long-ish deal.

If those small suppliers are locking people into deals longer than how far ahead they're buying if costs go back up or their costs of running the business come out to be more than they expected when setting the prices, they have potential to get themselves into a pickle.

Falling prices can also cause a company to fail - if you've done the prudent thing and bought ahead, but the price falls, you have to increase the deposit you've put down at the exchange so that it doesn't become profitable for you to walk away from the agreed deal. In such a falling market, small companies might not be able to come up with the cash, as they haven't billed the customer yet.

(PS. This whole need-to-buy-ahead problem is why most of the small suppliers get you to pay your first month's direct debit up front. OVO's giving you interest on your credit is a genius solution.)

Grumpy_chap

With YE failing just before Christmas, now GNE plus Simplicity in January, and rumours of others, there is clearly something amiss in the market.  Maybe the bar to entry and being admitted to regulation is too low, not that I want to be anti-competition.

Maybe, as well as the energy suppliers being able to credit check customers, we need to be able to credit check the suppliers?

brewerdave

Grumpy_chap said:

With YE failing just before Christmas, now GNE plus Simplicity in January, and rumours of others, there is clearly something amiss in the market.  Maybe the bar to entry and being admitted to regulation is too low, not that I want to be anti-competition.

Maybe, as well as the energy suppliers being able to credit check customers, we need to be able to credit check the suppliers?

I raised this in 2018 when a previous "supplier collapse" occurred. The general consensus then was that OFGEM were not equipped to carry out any form of financial auditing of potential suppliers ,and ,as you suggest ,they were under instructions from HMG to increase competition so the idea of supplier bonds were discounted.