Competitive UK power retail market hits consolidation phase as Brexit uncertainty increases

Regulatory headwinds, increasing competition, growth in renewables and investors’ uncertainty towards the Brexit outcome has resulted in the UK power market experiencing a major change. The ballooning of small players in the power retail business has created intense competition, leading to changes in the market landscape and dynamics, says GlobalData, a leading data and analytics company.

The power sector in the UK is witnessing a significant number of mergers and acquisitions (M&As) and exits by electricity suppliers, signalling the emergence of a consolidation phase. More than 10 electricity suppliers and natural gas suppliers have folded their businesses in the last 12 months. The smaller scale suppliers are most at risk, with some exiting the market after they failed to hedge the risks properly, and others falling prey to big players through M&A.

Ankit Mathur, Practice Head of Power at GlobalData, comments: “It is evident that companies will only be able to survive in this competitive market if they are able to achieve economies of scale. The small players have provided an opening for large energy companies to diversify and enter the UK energy retail business.

“For example, Shell Energy debuted into the UK energy market after acquiring First Utility in 2017 and recently proposed to acquire Green Star Energy. This proposed transaction along with announcements of Octopus Energy acquiring Co-op Energy, and Ovo Energy slated to acquire SSE Energy’s retail business, marks the third such announcement in the last three months that indicates the UK retail market is under a consolidation phase.”

The UK’s *Big Six energy suppliers have been badly bruised by the fierce competition from more than 60 smaller competitors offering cheaper and affordable prices. According to Ofgem, the Big Six companies have lost around 1.3 million customers and are serving just above 70% of the domestic customers. Their cumulative profits tanked by 10% and earnings before interest and taxes (EBIT) fell by 35% in 2018 as compared to 2017.

Mathur continues: “The smaller companies in the next tier are boosting share; however, they are more prone to the risk, with some exiting the market. The new stringent entry requirements for new suppliers including tighter funding requirements, providing a customer service plan and passing a ‘fit and proper’ test may restrict new entry into the market.”

*British Gas, EDF Energy, E.ON SE, npower, Scottish Power and SSE

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