21 Aug 2018

Is it the end for small energy suppliers?

Headlines are awash lately with news of the latest energy supplier having problems – either in default, or going bust.  And industry commentators are queuing up to announce the ‘end of the small supplier’ or similar.  But if we take a look at the causes of the majority of difficulties faced by small suppliers – the reasons for these issues are clear to see.  Suppliers that go out of business tend to fall into two pots – those that don’t take the complexity of the industry seriously enough from start-up and fail to bring in the right systems and expertise, and those who get systems and process right, but don’t necessarily understand the cash requirements when it comes to retail energy.

Over the last few years at Gentrack we’ve seen nearly every new entrant that’s come to the market, at an early stage of their development.  There are a lot of people who come into this business thinking that there’s money to be made in energy retail – but who then fail to understand the complexities of setting up and running an energy supply business.  And these are the businesses that are in danger of going bust.  They face real challenges in understanding which are the right systems, or recruiting the right expertise into their business.  Recent events have shown that businesses that are determined to build their own back-end systems from scratch or make a decision to go for the cheapest option, with little in the way of industry knowledge to guide them, are definitely on a road to ruin.

But businesses who invest in industry experts and the right technology can also get caught out – if they are not on top of their cash flow and understand their hedging requirements.  Over the past 6 months we’ve seen UK energy markets move upwards quite quickly – and if you haven’t bought and planned ahead it’s easy to get caught out.

However, this all shouldn’t be seen as an impossible balancing act.  Businesses like Bulb, Affect or So, all ranking highly on TrustPilot, whilst successfully growing their businesses and offering unique propositions.  They’ve seen the importance of investing in the right technology platforms which allow their businesses to grow at pace, scaling quickly as they acquire customers – whilst delivering effective service across multiple channels.  They concentrated on getting the basics right from day one – meaning fewer errors to fix at scale.  And they’ve taken a sensible approach to hedging and customer acquisition – so they don’t get caught out when markets move quickly.  They’ve proved you can create a successful, and scalable business in this sector.

We can expect a few other smaller suppliers to fall by the wayside as the industry goes through a period of consolidation, but this is just the sign of a healthy industry that is encouraging innovation and competition  Those who can successfully strike the balance and facilitate innovation, combined with the right technology and expertise, can be expected to succeed.

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