Welcome back to the Big Six!

Ultrasonic

tastyhog said:

Won't even be the big 6 soon, customers are being consolidated in preparation for nationalisation.

You make it sound like current situation is following some sort of plan  .

(Right now I'd strongly be against nationalisation happening personally.)

Streaky_Bacon

MWT said:

Hopefully though, if there is a return of the smaller players into this market, they will not be allowed to run up large costs for the rest of the suppliers and consumers to cover by offering unfeasibly low tariffs and leaving others to pay for their failures...

Have they gone out of business because of unfeasibly low tariffs, or because they didn't have the financial muscle to hedge their losses or just swallow those losses when the market turned so significantly?

When I signed up for a 1 year fix with Green a year ago, the wholesale price for electric was around 4p/kWh and I was paying them 11.5p/kWh plus 15p SC.

https://www.utilityhelpline.co.uk/news/Wholesale-Energy-Prices-Update-17-09-2021

Of course, you have to factor in overheads and also some factoring in of market moves and forward hedging, but that doesn't seem too bad a margin, although I don't know what profit/loss they were actually making. Certainly it doesn't seem unfeasibly low.

It only seems to be the very recent, and very significant market spike that seems to have done for all of these small companies.

Start-ups being killed of by competitors with deep pockets is not a new story, especially when there is a difficult market.

In the good times, those companies can rake in extra cash, because many people will pay more for the same product, and then can use that extra cash in bad times to knock out the competition.

I suspect that the likes of Green, even if they had been charging the same as the big boys, would not have had the established financial muscle to compete in this market.

QrizB

Streaky_Bacon said:

MWT said:

Hopefully though, if there is a return of the smaller players into this market, they will not be allowed to run up large costs for the rest of the suppliers and consumers to cover by offering unfeasibly low tariffs and leaving others to pay for their failures...

Have they gone out of business because of unfeasibly low tariffs, or because they didn't have the financial muscle to hedge their losses or just swallow those losses when the market turned so significantly?

When I signed up for a 1 year fix with Green a year ago, the wholesale price for electric was around 4p/kWh and I was paying them 11.5p/kWh plus 15p SC.

https://www.utilityhelpline.co.uk/news/Wholesale-Energy-Prices-Update-17-09-2021

Of course, you have to factor in overheads and also some factoring in of market moves and forward hedging, but that doesn't seem too bad a margin, although I don't know what profit/loss they were actually making. Certainly it doesn't seem unfeasibly low.

According to this Ofgem infographic (link) published back in March the wholesale price of electricity made up roughly 1/3rd of the retail proce and the supplier margin was negative. Even then the suppliers were making a loss on average.

Streaky_Bacon

QrizB said:

According to this Ofgem infographic (link) published back in March the wholesale price of electricity made up roughly 1/3rd of the retail proce and the supplier margin was negative. Even then the suppliers were making a loss on average.

Thanks. With accounts, the devil's in the detail though.

Here is SP's account for 2020.

https://www.scottishpower.com/userfiles/file/SP_Segmental_Generation_and_Supply_Statements_2020.pdf

Gas and Electric domestic revenues - 2,643.4 (millions)

G/E domestic operating costs (inc "indirect costs") - 2,603.7

G/E domestic "indirect costs"- 498.3

G/E domestic earnings - 39.7

G/E domestic earnings (excl. "indirect costs") - 538

Depreciation and amortization - 92.2

So, even though they reported a 1.5% loss after D+A, they still made a profit on the energy that they sold, but accounting rules allow them to discount D+A, which gives them an accounting loss.

However, for each extra kWh they sold they made a profit.

What smaller suppliers have tried to do is reduce the "indirect costs", which are the offices, support staff, call centres etc.

That is what people are paying for when they decide to go with the Big 6. Those "indirect costs" are almost 20% of the bill.

As for the D+A it depends which assets are covered. Much of it will be building call centres and other customer service infrastructure, that the small suppliers eschew.

So, you certainly don't get the same infrastructure with a small supplier, but if they can keep those costs low, they can potentially offer lower tariffs that the Big 6 can't, and still make money.

But again, they don't necessarily have the financial muscle to deal with a market shock.