The UK’s energy supply market has been undergoing a period of consolidation, with the number of fully licensed suppliers falling to under 50 from a high of 62 in 2018, according to a report commissioned by Shoosmiths and produced by Cornwall Insights – Consolidation in the domestic energy market.
Not only is consolidation expected to continue in the near term, it will be combined with a major shift in business models that is set to define the market further. A detailed analysis of the energy supply market was conducted for the report including interviews with leading stakeholders.
Key findings of the report:
- Suppliers will need to diversify their revenue streams to gain sufficient margins to reinvest in their business. Those that fail to go beyond selling energy will not be sustainable in the long term.
- The role of prosumers (households that generate and sell back energy to the grid) in a future energy system will be increasingly important as the heat and transport sectors are electrified, adding to electricity demand.
- Further market exits can be expected through both Ofgem’s Supplier of Last Resort (SoLR) mechanism and mergers and acquisitions.
Change in supplier offerings
Suppliers that do not focus solely on price but engage consumers on a broader service platform will be well placed to succeed. However, this requires upfront risk capital to be put to work and patience from those that invest in it before returns follow. Consequently, fewer players will win, with earlier adopters/movers acting as magnets for the significant yet finite number of investors.
This is a dramatic shift from relatively frictionless and cheap “price and volume” market entry models we saw from the middle of the last decade, with the competitive pressure in the market now seeing these companies most vulnerable to failure.
Tim Jackson-Smith, Corporate Partner at Shoosmtihs with expertise within the infrastructure and energy sector, said:
“It has been great to work with Cornwall Insight to explore the dynamics at play and gain a better understanding of what is driving change and the M&A activity we have been seeing.
“The fact that suppliers are operating within legally enshrined climate change targets means that they, along with everyone else, are going to need to play their part to achieve net zero by 2050. This will undoubtedly shape how suppliers anticipate and respond to the continuing evolution in the market now and in the future, and this market insight will help Shoosmiths better understand how to serve those changing client needs.”
Emma Bill, Lead Research Analyst at Cornwall Insight, said:
“The UK energy retail market is undergoing significant restructuring, and with the current landscape of rising energy costs and looming supply payment deadlines, there is a real possibility of further supplier exits later this year.
“There is a changing of the guard occurring in the supplier market, and for those that remain in the sector, it is critical to differentiate on more than just price. In particular, those who engage and empower consumers through technology are likely to thrive. Therefore, suppliers who make this transition early to support a high-quality consumer engagement and reach net zero targets will benefit.
“However, this will require significant financial support, and those who are unable to secure this or diversify enough will be unlikely to remain in the market.”
About the Cornwall Insight Group
Cornwall Insight is the pre-eminent provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British and Irish energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes and policy frameworks, and a practical understanding of how markets function.
About Shoosmiths LLP
About Shoosmiths Shoosmiths LLP is a UK law firm with 13 locations across the United Kingdom, and 210 partners and 1400+ lawyers and business support employees. It announced a turnover of £167.9 million to end April 2021. Shoosmiths LLP was recently awarded ‘Best Operational Continuity’ and ‘Best Shared Learning with Clients’ at the Managing Partners’ Forum Awards and has been ranked in the top five firms for deal volume for the past five years in Experian MarketIQ’s M&A Review.
With over 30 years experience within the infrastructure and energy market, Shoosmiths has an in-depth knowledge and enthusiasm to to explore and develop our business with our clients on many of the emerging, innovative, challenging and rewarding parts of this diverse sector. Our wide breadth of experience includes renewables, waste to energy, transport and urban and social infrastructure expertise, with more information available to view here.