Ten years after watchdogs pledged to break Big Six’s stranglehold, two men now supply a third of households with gas and electricity
It was less than a decade ago that Ofgem vowed to fix Britain’s shattered energy market. The regulator said it would reinvigorate competition and get a better deal for households – diminishing the power of the ‘Big Six’ corporate giants that once dominated the sector.
But years of wasted effort and a costly market collapse later, the UK has come full circle with just six companies back in control.
Analysis by The Mail on Sunday shows that nearly 90 percent of UK domestic energy is supplied by British Gas, EDF, Eon, Octopus, Ovo and Scottish Power.
Fortune: Billionaire Stephen Fitzpatrick owns Ovo, while Octopus, run by Greg Jackson, bought Bulb
But this time there is a big difference. Two of the companies – Ovo and Octopus – are run by entrepreneurs rather than giant corporations with a history of power generation and supply. The two companies claim that they are well-funded and provide customers with a much better service than old rivals.
The expansion of Ovo and Octopus – run by billionaire Stephen Fitzpatrick and Greg Jackson respectively – has been rapid.
Their rise is also due, at least in part, to the failure of the market. The pair are now responsible for nearly ten million customers, an incredible one-third of all households after dozens of suppliers collapsed.
The firms founded over the past decade have been so weak that in a year waves of them failed as energy prices shot up. This has led to a drastic shift in the number of companies that sell us gas and electricity to power and heat our homes. The number has fallen to its lowest level since 2014, to 24 from a high of 70 in 2018. But the rest of the companies outside the new Big Six are minnows by comparison.
Tony Jordan, senior partner at energy consultancy Auxilione, said Ofgem’s experiment with competition had failed and had not achieved “the good hoped for or intended”.
The arrival of the new Big Six was heralded last month when Jackson’s Octopus bought Bulb from a government-controlled special board. Taxpayers lost billions to the collapse a year ago. But that could increase.
The Mail on Sunday last weekend revealed that the government has agreed to cover Bulb’s energy costs over the winter, when prices could rise again, meaning costs could rise by a further £2.5bn.
The deal has crystallized the power base of the remaining suppliers, not least that of Jackson, who has added Bulb’s 1.5 million customers to his own. Jackson is the founder of Octopus Energy and his stake in the company is valued at £260 million.
But fast-growing companies run by entrepreneurs are also rarely as financially transparent as publicly traded companies. Imagination Industries, owner of Ovo Group, has only two directors. One is Fitzpatrick, a Belfast-born former trader in the city, and the other is finance director Vincent Casey. The Mail on Sunday revealed last week that Ovo’s parent company paid out £27 million in loans to its directors last year.
We also revealed that Ovo, which has 4.5 million customers, had losses totaling nearly £300 million in three years. But the magnitude of the losses has not held the company back so far.
The charity Citizens Advice has complained about a “catalogue of mistakes” by Ofgem that “has failed to act against unsuitable energy suppliers for nearly a decade.” It said the regulator has not used its enforcement powers against wayward suppliers and missed opportunities to reform the market. “Long before this year’s crisis, there was financial weakness with a number of suppliers reliant on customer credits for working capital,” it said earlier this year.
Gillian Cooper, head of energy policy for Citizens Advice, called on Ofgem to ‘put the consumer at the center of future energy market plans’. She said: ‘Competition in the energy market can drive prices down, but it is vital that companies have responsible business models. Supplier failure over the past two years has caused complete chaos for customers and left us all in billions of dollars. We need reassurance that this will never happen again.”
Jess Ralston, senior analyst at the Energy and Climate Intelligence Unit, said “the competition has essentially left the building” under current market conditions.
Rising wholesale gas prices have forced government intervention to protect household budgets. But it’s not yet clear what the reduced competition will mean for accounts in the future – or what Ofgem can do about the situation. It is also likely that suppliers will be startled by the Russian war in Ukraine and the ongoing gas shortage.
Tony Jordan added that competition has become largely irrelevant in today’s market as the era of cheap energy has been put on hold.
Ofgem said it has stress-tested all suppliers — raising the bar for new ones entering the market.