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  • Writer's picturePeter Franklin

A tale of unintended consequences - a 2020 retrospective

Once upon a time there were 6 energy suppliers controlling 97% of the UK energy market. The Government, and indeed the Opposition, and Regulator were not happy with this situation fearing, and believing, that effective competition was being compromised.

To remedy this situation the Regulator brought in a number of Retail market reforms with the aim of encouraging greater price transparency and stimulating switching. Concurrent with this the government continue to deliver its programme of transforming to a low carbon energy arena and alleviating fuel poverty by driving social policy through obligations on energy suppliers. In addition suppliers were being asked to introduce Smart Meters as part of the EU/UK drive to move to greater energy efficiency through greater energy use knowledge for consumers.

All these noble and worthwhile objectives had the effect of augmenting the cost base of the players in the industry.

Outside of the UK two of the main players…Eon and Npower, both of German parentage, were suffering the effects of the u-turn in German policy away from nuclear power which was hurting their profits and balance sheets. Also in Spain the economy continued to struggle and Iberdrola , the owner of Scottish Power, also suffering.

In the UK, Scotland took the plunge and decided to leave the UK following a hotly contested referendum.

The final straw was the threat of price freezes – which coupled with rising costs was a recipe for profit purgatory.

So what happened?

The two German companies merged their operations to create some scale economies in their homeland operations – as well as in the UK. So then there were 5.

Scottish and Southern grasped the opportunity to generate value by splitting the company. The Scottish element was sold to Scottish Power to create a United Scottish Electricity company – with the full support of the new Scottish government looking to establish a national energy champion. The Southern part of the business was sold to EDF to give them full coverage of the south of England. So then there were 4.

Centrica, the owner of British Gas then joined the fray and offered to buy Iberdrola out of its troubles. This created the quasi-monopoly multi utility in Scotland – Scottish Energy. With the new Scottish government taking a significant stake in the business political support was more than forthcoming.

So then there were 3.

Down south, EDF and the new German energy combination focused on their home areas with EDF focused on the South and the mighty duo focused on the Midlands and the North. So effectively in England and Wales consumers had a choice of British Gas or the local competitor. So effectively there were 2….and in Scotland there was 1.

And we all lived happily ever after?

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