Failed suppliers, a price cap and the fall of the Big Six

After nine failed suppliers, major takeovers and a price cap on bills, the energy sector has faced another bruising year which seemed to mark, once and for all, the end of the Big Six.

Change for suppliers started early, on January 1, when Ofgem’s tough new rules which put an upper price on the cost of energy to some households came into force.

The wildest predictions of the industry, that customers would stop shopping around for better deals, did not quite materialise in the weeks and months that followed.

In fact, by the end of 2019 it had become clear that more people had switched over the last 12 months than at any other point on record. But it did force some bigger suppliers to take a cut to their profits.

However, the price cap is not thought to have much to do with why so many smaller suppliers went out of business in 2019, said Ed Reed at Cornwall Insight, a consultancy.

The trend for unsustainable small suppliers, and some not so small, was instead a continuation from 2018. Over the course of the year nine suppliers went out of business, with millions of pounds in costs from these collapses being passed on to customers.

“It’s probably more to do with their business model… which was always that all that you’ve got to do is be very, very cheap, and then customers will come to you. And then you can start to figure out how to make money,” Mr Reed said.

While the year saw some major changes at the smaller end of the market, the top was not immune either.

Energy supplier Ovo, which was only founded in 2009, became the first small supplier to break into the big league when it took over Big Six supplier SSE.

The tie-up, which was approved by competition authorities in December, represents the psychological moment when the Big Six as a concept was blown apart. But the writing has been on the wall for some time.

Since 2011, when the Big Six counted all households as their customers, the companies’ market share has collapsed. According to the most recent figures from Ofgem, this hit 71% in the second quarter of this year.

“The SSE and Ovo deal demonstrates that the energy industry is undergoing the same transformation as airlines did – the carriers consolidated, and the best challengers joined them at the top of the rankings in terms of scale,” said Greg Jackson, chief executive of Octopus Energy, one of the biggest challengers in the sector.

Meanwhile, sustainability was the buzzword on many lips over the year. As the Government legislated for the UK to become carbon neutral by 2050, and protesters hit the streets of cities around the world, the industry proudly showed off the progress it had made.

Just two years after Britain managed to go for a whole 24 hours without burning coal for power for the first time since the 1880s, the country clocked up a record coal-free two weeks in May.

Meanwhile, in December the country’s wind turbines hit a new generation record. In fact turbines were pushing out so much electricity that the National Grid started paying some users to take it off its hands.

“This has to become the future,” said Mr Jackson, whose customers got paid to take energy.

“National Grid would have had to turn off those wind turbines if we weren’t paying people to take that energy.”