Cornwall Insight retail market analyst Molly Lloyd examines suppliers moving into international markets and discusses some of their potential motives for doing so.
The GB energy retail market has long been characterised by entries and acquisitions from suppliers outside these shores.
The oil and gas majors in the 1980s and then American utilities a few years later were amongst the first to stake their claims. Some like Total Gas & Power, the successor to AGAS the first gas market competitor, have stayed the course. Many others have come and gone.
Entrants have come looking to expand their offerings to a new market and increase their customer bases and, in the early days of liberalisation at least, to learn about what might be on the way in their home markets.
Turning the tide
With the exceptions of Ireland and Centrica and National Grid’s forays in to near Europe—quickly divested in Centrica’s case—and North America, British-led utilities companies seeking to expand internationally have been few and far between.
That is until the last year when OVO Energy, Smartest Energy, Bulb and Octopus Energy have all launched new initiatives.
Smartest Energy heads to the USA
Smartest Energy announced its expansion into international energy markets in August launching its first operation overseas in the United States serving customers in the north east region.
The non-domestic electricity supplier stated that its US business plans to build on the achievements of the UK company, providing a range of products and payment structures tailored to meet its customers’ needs.
Bulb states its case
On 6 June, Bulb announced its intention to supply carbon-neutral energy in the French, Spanish and Texan markets. It will first start with a soft launch for family and friends and plans to carry out a full launch in early 2020.
Bulb stated that it looked for markets where it can help people save money on their energy and cut carbon emissions. The supplier said it selected the three markets due to their deregulated nature and “substantial renewable energy generation.” The supplier will be using the technology it has developed in the UK, stating that this will help “to keep costs low while delivering excellent service.”
Bulb has also said it has plans to expand into other geographies following this launch. In a blog announcing the move, co-founder Hayden Wood referred to the territories as the “first wave of Bulb International”. Wood added that “while we haven’t worked out tariff details, we’ll be providing green energy at significantly lower cost than the typical energy bill in these countries.”
Investment sparks OVO Energy’s ambitions
OVO Energy announced in February that Mitsubishi Corporation invested in the company for a 20% stake in the supplier. The investment included a cash injection of £216mn which would help it to expand into Europe and Asia. Stephen Fitzpatrick, CEO of OVO Energy stated that the supplier would aim to launch in France in July, followed by Spain. OVO Energy now has websites for customers based in France and Spain where customers can sign up and maintain domestic energy accounts.
The supplier also applied for electricity and gas retail authorisation in Australia in August and has stated that a website for Australian customers is coming soon. It hopes to launch a supply proposition from this month. The company has stated that diversifying overseas would allow it to increase the reach of its technology platforms and products.
The supplier also operated in Germany after it purchased a majority stake in provider 4hundred in September 2018, which added 2,000 green electricity customers to its customer base at the time. The majority stake was sold to Octopus Energy earlier this month.
Octopus Energy’s Kraken helps expansion
Octopus Energy has already made moves into international markets with the licensing of its Kraken system to Hanwha Group, a solar cell manufacturer based in Korea. Hanwha Group revealed plans to launch a renewable electricity retailer in Australia in October. The company partnered with Octopus Energy, using its Kraken system as the foundation for the launch.
The partnership will target markets transitioning away from fossil fuels and will help to decentralise energy supply and reduce consumer costs. Hanwha Group has chosen the Australian market as the Kraken platform is designed to accelerate the move to green energy and smarter grids – a transition currently ongoing in areas of Australia. Andrew Butler, Managing Director of Hanwha Energy Retail Australia, stated that the Kraken platform was chosen as it brings a new level of customer experience to the Australian retail energy market.
Push and pull factors
At a time of very tough trading conditions in the GB energy market, it is striking that four companies who would see themselves as innovators here have had the management bandwidth and investment support to embark on international diversifications.
One of the key learnings they will take with them from the GB market with its multiple competing retailers, is that energy retail is a very difficult place to gain and retain customers.
The right systems, service, price and, progressively, renewables proposition are essential success factors. The introduction of the price cap here earlier this year may have further incentivised diversification by squeezing expected long-term profit margins available in Great Britain.
Smartest Energy has opted for a sophisticated business market, where the wholesale trading rules can be related to its GB experience.
As well as entering the German market through acquisition, Octopus Energy has licensed its software for use by a third party in Australia, indicating that international expansion does not automatically mean direct entry to another retail market.
Bulb, OVO and Octopus have all opted for European consumer markets with a long history of deregulation, relatively high numbers of existing suppliers and relatively high and increasing switching rates (see Figure 2).
So while all the companies have taken different steps to grow an international presence, all can be tied in to the skills and expertise they have learned from the British energy retail markets.
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