- Big Six
- Power Generation
- Market Effects
- Energy Transformation
One of the Big Six Is Down, Long Live the Big Six
As the energy transition continues, the companies that do not move fast enough will likely fail. In the UK, this has been especially true for energy suppliers (retailers). The number of energy suppliers grew from 12 in 2011 to 61 in June 2018. This increase in competition saw a sharp reduction in margins as new entrants tried to capture customers from the established competitors, bringing down the weakest competitors. Since June 2018, the number of suppliers has fallen below 50.
While I have highlighted this trend before, the news now is that for the first time, one of the companies that failed was one of the so-called Big Six suppliers in the British market, formed during the privatization of the sector. On September 13, 2019, OVO, one of the more ambitious challenger suppliers, announced that it would be acquiring SSE Energy Services. SSE Energy Services was the second-largest supplier in the UK market—at the start of the decade it had a 20% share—by the time of the acquisition, SSE had only 13% of the market.
One Down, Who Is Next?
Technically, another of the Big Six is going to disappear. On September 2019, E.ON and RWE, two German power giants, closed a deal that sees all the generation assets of E.ON pass to RWE. In exchange, E.ON gets RWE's supply business. In the UK, this means that two of the Big Six (E.ON UK and Npower) will have the same owner. While E.ON has not decided what to do with both companies, CEO Johannes Teyssen has described Npower as “an open wound that is bleeding profusely.”
Customer First, Digital Enabled Strategy Could Bring Margins Back
With the acquisition of SSE, OVO is set to triple its market share. The question now is if OVO can make a profit from the customers SSE had in the cutthroat market conditions of the UK supply market. A relative newcomer (OVO was founded in 2009), the company has been growing a customer first, digital enabled strategy at a steady but slow pace. While OVO bet on fast growth, it is still to be seen if the strategy can work while trying to integrate decades old processes and unsatisfied customers that it got from the acquisition.