As Octopus reaches its tentacles into Bulb, a new Big Six is on the horizon
Bulb Energy’s 11-month saga as a de-facto nationalised retail firm finally came to an end last week, with ascendant supplier Octopus Energy becoming the eventual new home for its 1.6m customers.
The deal will be a relief for Whitehall – with the costs involved in keeping Bulb on life-support for nearly a year projected at around £4bn, the biggest state bailout since RBS during the 2008 financial crisis.
Octopus now has its tentacles stretched across five million households, with energy specialists Cornwall Insight calculating it has become the third-biggest supplier in the country with a 16 per cent share of the market.
This crowns the extraordinary growth Octopus has enjoyed over the past seven years, one of the few, true, recent British success stories.
It also, however, exposes an industry that is once again coalescing around a handful of energy firms – after years of tinkering to try and make the retail market more competitive and offer as much choice as possible to customers.
Collectively, British Gas, EON UK, Octopus, Ovo Energy, EDF Energy and Scottish Power now represent around seven eighths of the entire retail market.
Barely six years ago, David Cameron’s Downing Street was committed to breaking up what were seen as anti-competitive monopolies. Now, here they are again.
The group’s market share is inching closer and closer to the 90 per cent plus market stranglehold enjoyed by legacy suppliers before the Competition and Markets Authority and Ofgem reformed the market in 2016 (alongside the boom in price comparison sites), to drive down their influence to below 70 per cent as recently as 2019.
The latest counter-revolution has clear positives for consumers – such as stability of suppliers.
After all, the energy crisis exposed dozens of companies that were poorly managed, which failed to hedge supplies properly at an immense cost to customers. Few tears were shed for the 30 energy firms which have collapsed over the past 15 months.
It is also difficult to argue with Ofgem pushing the industry away from its reliance on switching – luring customers in with cheap, unsustainable first-time deals – and towards sustainable growth, raising the barriers for entry in a market which until last year included an ex-footballer with no experience heading up one of the biggest energy firms in the country.
However, it is no longer just dubious firms in potential jeopardy. So Energy is the latest company to be scrambling for financing. The renewables-only supplier is a respected challenger with over 300,000 customers.
Yet, while Octopus was closing the Bulb deal, So was hiring Interpath Advisory to chase £50m in funding to support itself over the winter.
Co-founder Simon Oscroft blames the constant changes to government support packages for households, which were cut from two years to six months almost overnight. There have also been difficulties accessing funds from the supplier support scheme, he revealed.
These issues are exacerbated by soaring wholesale costs and continued uncertainty in markets driven by evolving macro-factors such as Russia’s invasion of Ukraine.
It is unlikely So’s travails will be the only ones over the winter, and with the costs involved in running energy firms climbing, the chances of another exciting new arrival like Octopus arriving on the market in the coming years – which offered innovative tools like its Kraken customer service platform – are also shrinking.
Scanning the challenger firms, real options exist outside the big names for consumers such as feed in tariffs specialists, pre-payment meter players, and firms offering multi-service experts including deals for broadband and telephones alongside heating.
Octopus’ boss Greg Jackson told City PM earlier this year the energy market needed to shift from being like a crowded market square with people barking from stalls to something closer to supermarkets.
This is an appealing concept, and its naturally attractive to Octopus as the fastest-growing supplier, shaking up the top-end of the energy market – almost like how Lidl is doing in the grocery sector.
But supermarkets co-exist and compete with corner shops, express stores, produce markets and on-demand services like Gorillas.
Despite all the chaos, reforms and drama that has plagued the energy sector households fundamentally benefit from meaningful choice. It was, after all, the efforts to break up the power held by a few behemoth players that allowed companies like Octopus to be created.
This is driven by innovation, competition, and new arrivals – all of which could be at risk if the energy market settles on just established names bereft of challengers.