Big news over the last week for the energy market; not only did GB Energy Supply cease trading but Drax announced on 6th December that it has entered into conditional agreement to buy Opus Energy for £340mn.
So is the Big 6 about to become 7? And what’s the current plan regarding the 160,000 customers belonging to GB Energy Supply? Here’s what we know so far.
In a statement on 28th November, Ofgem assured GB Energy customers that despite the company having ceased trading there were procedures in place to protect their supply and any outstanding credit balances. During this announcement Ofgem stated they were taking steps to appoint a new supplier.
GB Energy said: “Due to swift and significant increases in energy prices over recent months and, as a small supplier our inability to forward buy energy to allow us to access the best possible wholesale prices, means that the position of the business has become untenable.”
From our vantage point it’s easy to see what went wrong for GB Energy Supply and this turn of events shows how vulnerable small suppliers can be if they get their buying strategy wrong. In today’s volatile energy market, it’s no wonder that GB Energy Supply had difficulty balancing their short-term energy purchases. A series of sudden increases and an overall steady increase in forward prices meant that GB Energy were unable to buy at a price that left them with any margin at the customer prices they had agreed.
GB Energy could undercut the Big Six suppliers when the wholesale prices were falling because the short-term approach meant that they could offer low prices and then buy the energy closer to the point of delivery having achieved some margin between the customer price and the wholesale price. Essentially the market provided their profit. Of course when markets are rising, the reverse is true. Since most of their customers were on fixed rates, and they weren’t taking on enough new customers to cushion the financial blow of a rising market, it became inevitable that they would have to fold.
Senior partner for consumers at Ofgem Rachel Fletcher said: “In any competitive market companies will fail, this is why we have procedures in place to ensure customers’ energy supplies are always secure.”
Since then, Ofgem have made the decision that Co-operative Energy will be taking on GB Energy supply customers. This was following a competitive process put in place to ensure that the customers received the best possible deal.
On 29th November, the energy regulator said that regardless of whether customers have fixed deals or standard variable tariffs they will be paying the same rate as they were before. Co-operative Energy have vowed to honour all outstanding credit balances for both customers who are planning to move away from GB Energy Supply that are still owed money and current customers.
Rachel Fletcher said: “Co-operative Energy will be supporting GB Energy Supply’s customer contact centre, making sure that customers have a smooth transition to their new supplier. Our advice for customers of GB Energy Supply is to wait until Co-operative Energy contacts you. They will give you more information about the tariff you are on, and about your credit balance.”
Co-operative energy will partly meet the cost of protecting customer’s credit, the remainder of which will be recovered through a levy of all energy suppliers.
Another big shake up in the energy world was the news that Drax has entered into a conditional agreement to acquire SME supplier Opus Energy.
In a statement released on 6th December, Drax said that Opus represented a well-established business committed to serving the SME market and would offer a compelling range of financial and strategic benefits. The purchase is dependent on the European Commission granting state aid approval for a subsidy for the biomass conversion of their third unit at its Yorkshire power station.
In the statement made by Drax they said: “With this new company as part of Drax Group we will be able to grow our existing retail offering, providing more of the UK’s growing businesses and established industrial and corporates not only with electricity, but also with gas. Our retail offering will provide businesses with a route to sell the power they generate but do not need – plus expertise in how they can use energy more efficiently.”
CEO of Drax Group, Dorothy Thompson followed up by saying the deal created a “strong and competitive presence complementing our existing Haven Power offer.”
The Board of Opus Energy added: “We are pleased to announce today that the shareholders of Opus Energy have unanimously agreed to accept Drax’s offer to acquire the whole of the Opus Energy group subject to certain completion conditions.
“Our shareholders believe that the offer from Drax provides a unique opportunity which is strategically compelling for the Opus Energy group and which will allow the business to move forward to its next stage of growth.”
Drax already owns Haven Power which primarily supplies to business customers. If the Drax-Opus deal goes through the combined companies would have about 10% of the total business meters and volumes in the UK energy market.
As it stands once the deal is finalised the Big Six will indeed become the Big Seven, however we are curious as to how Drax will proceed with the two overlapping companies. Will they take measures to keep Opus and Haven separate or do they have plans to merge the two together at some point?
Only time will tell, but until then we will be keeping a close eye on the situation for our customers who are currently with Haven Power and Opus Energy.