Consolidation in the energy market predicted to continue

It has been a turbulent time for the retail energy market, experiencing a period of consolidation with mergers and supplier exits. This supplier consolidation is expected to continue in the near term. If suppliers fail to shift their business models for the new world it is likely to continue, according to a new insight paper from Cornwall Insight and UK law firm Shoosmiths – Consolidation in the domestic energy market.

The report features a detailed analysis of the supply market and includes views and predictions from leading stakeholders across the industry.

Key findings of the insight paper:

  • Suppliers that do not diversify their revenue streams will not be sustainable in the long term.
  • The role of prosumers in a future energy system is increasingly important as the heat and transport sectors are electrified.
  • Further market exits are expected through both Ofgem’s Supplier of Last Resort (SoLR) mechanism and mergers and acquisitions.

The report found that the energy supply market has contracted significantly, with the number of fully licensed suppliers falling to under 50 from a high of 62 in 2018. Discussing the report, Emma Bill, Lead Research Analyst, 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.

However, suppliers that can move beyond the commodity/price paradigm and engage consumers on a broader service platform will be well placed to succeed in the new market. According to Emma, “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.”

This change in the market will require substantial risk and capital upfront. This could result in fewer players winning overall, with earlier adopters/movers acting as magnets for the significant yet finite number of investors, seeing the market reduce further.

“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.”, said Emma.

Commenting on the insight paper Tim Jackson-Smith, Corporate Partner at Shoosmtihs with expertise within the infrastructure and energy sector, said: “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.”

To download to the report please click here. For more information on the supply and services market please contact Richard on r.wetherall@cornwall-insight.com.

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