I really don't want this to sound clickbait, but there's a real risk of ~£1 billion in claims to the SoLR levy this winter.
Challenger suppliers have typically been attracting higher than average consuming customers. For a customer using 4,200 kWh of electricity and 14,000 of gas then you would be at negative ~£575 Gross Margin if you had to hedge that energy right now.
4 suppliers who have failed in the past few weeks, who were supplying ~660k customers. The claim to the levy could be ~£380m to just cover the increased costs of hedging the energy.
There are other suppliers who are materially at risk of failure. Short term hedging strategies may have paid dividends in a falling market, but right now we have:
- Suppliers who are completely unhedged and buying their energy on the imbalance markets
- Suppliers who are short on their purchasing every day, and are exposed to the volatility in EFA blocks 5 and 6
- Suppliers who are having to sell back some of their hedges to pay bills and margin calls, leaving them short in blocks 5 and 6 and spilling to imbalance. One supplier has had to pay £3m in imbalance charges in the past few weeks, including £0.9m on a single day
- Suppliers who are already well hedged, having to pay £0.3m (~£20 a customer) to reshape their hedges in the Day Ahead auction
Suppliers are being expected to absorb these costs. Well hedged suppliers will be sat on significant Mark-To-Market, but if the costs incurred cannot be recovered, then cash reserves will dry up and more suppliers will fail this winter.
If we see a number of the mid sized challengers fail, then the costs of hedging/rehedging the energy will get up towards £1 billion.
This is before we've considered the OpEx and Metering costs - c. £220 per customer under the price cap, which could be another £350m-£400m, as well as the costs of customer credits which could be £75m-£125m (or very possibly higher...)
Ian shapes the BFY vision and inspires our team to bring it to life, while remaining central to complex client engagements in Strategy, Commercial, and Operations.View Profile