Cornwall Insight: extraordinary retail market update

Following a series of important developments announced today, this Cornwall Insight extraordinary update covers:

  • New information released by Ofgem on RO buy-out fund mutualisation, including coverage of enforcement action against Spark and Economy Energy
  • The announcement that Extra Energy goes in to supplier of last resort
  • Summary of a consultation launched by Ofgem today on protections against poor customer service and financial instability from suppliers

Our retail market intelligence analysts and experts are available to discuss the broader implications of these developments.

Further comment will follow for subscribers in an upcoming addition of Energy Spectrum, as well associated Alerts for our regulatory customers.

For more information on retail market developments please contact Anna Moss on 01603 542 134 or  

RO buy-out mutualisation

Ofgem’s updated the market today (21 November 2018) on which suppliers have paid their liabilities for the Renewables Obligation (RO). The regulator confirmed that £58.6mn remains to be paid in to the RO buy-out fund for Compliance Period (CP) 16 (2017-18).

The regulator also stated that it had opened investigations into Spark and Economy Energy over their non-payments in to the RO late payment fund, due 31 October. Additionally, URE Energy and Eversmart have plans to deliver outstanding monthly payments by 31 March 2019.

Ofgem’s statement is its first on the status of late payments since 22 October when it revealed that £102.9mn remained outstanding from 34 suppliers. As Figure 1 shows Ofgem’s update means that £44.3mn in payments have been recorded since 22 October, equivalent to 1.0mn Rocs bought out over 2.4TWh of electricity supply in Great Britain.

It had also previously stated last week that it had “appointed an external party” to audit late payments and that after this it would “publish the level of shortfall in the late payment fund for the 2017-18 period, which will then be mutualised”. If it turns out that £58.6mn is the shortfall, the mutualisation process will see other suppliers charged an extra £0.202/MWh. This would be payable in four instalments over the year from next September.

Our initial estimates are that the four suppliers named by Ofgem today (and the five supplier of last resorts that left the market before 31 October) account for a significant proportion, but not all of the RO shortfall.

The SoLR for Extra Energy

The balance may well be accounted for by Extra Energy, which has been placed in to supplier of last resort (SoLR) this afternoon. Extra is the largest domestic supplier to be entered into SoLR in recent years, it is also the largest business supplier to fold since Bizz Energy in 2008. Ofgem reports that it has 108,000 domestic and 21,000 small business customers. It leaves the market with unresolved licence investigations.

This is the sixth supplier to enter SoLR in 2018, and the tenth failure in total this  year.

Consultation on approach to licensing suppliers

Today, Ofgem also published its consultation on the review of its approach to licensing suppliers. The scope of Ofgem’s review includes proposed reforms to (i) strengthen requirements at entry (ii) impose new requirements on suppliers to improve ongoing oversight and promote higher financial and risk management standards and (iii) ensure there are robust arrangements for when a supplier exits.

Proposals include for supply licence applicants to demonstrate that they have the adequate financial and operational resources to function for 12 months. There will also be a requirement for active suppliers to submit annual reports focusing on, among other things, resilience to key customer service obligations and Government schemes. Ofgem says it also intends to assess the people that will actually operate the supply business, and not the managed service providers who are preparing pre-accredited companies for onward sale.

Similarly, suppliers may be restricted in terms how they accrue, hold and use customer credit balances. In advance of this, Ofgem is due to issue Request for Information to ascertain credit balance practices across the market.

Responses to the consultation are welcomed unto 23 January, with a new regime expected to be in place by Spring 2019.

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