Ofgem issues dire warning as energy suppliers mull UK exit after Bulb

Martin Lewis discusses Octopus Energy’s acquisition of Bulb

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Energy regulator Ofgem has issued a dire warning over the UK energy industry, after Shell announced that it was considering exiting the country’s retail sector. Ofgem chief executive Jonathan Brearley warned that this move raises important questions over the industry’s attractiveness to businesses, particularly after dozens of suppliers collapsed over a year ago. Aside from threatening 2,000 jobs, this move could also deal a devastating blow to the UK’s energy industry, which is reeling from the fossil fuel energy crisis over the past few years, causing nearly 30 suppliers to enter administration.

Speaking to the BEIS Select Committee, Mr Brearley said energy suppliers would require a credible pathway to profitability, as companies struggled to cope with the volatile natural gas markets that skyrocketed following a post-pandemic recovery boom.

He said: “It remains a concern to us around the long-term sustainability and attractiveness of this market.”

In an effort to clean up the energy sector, Ofgem announced sweeping reforms which included fit and proper person tests and capital adequacy requirements, as it tries to shift industry business models from reliance on switching and growth pledges to sustainable profit-making, according to City AM.

Mr Brearley added that he was looking to make sure that energy suppliers would find the UK market an attractive place to invest in while protecting customers from crippling bills.

He said: “We will continue to do what we can in two ways. Both in terms of evolving the existing price cap to make sure it’s as flexible as possible, and as we build financial resilience of the sector it will become more compelling for investors to come into this market and make sure they can see a sustained profit not based on volatility in the market.”

While energy producers have earned record profits over the past year from the high natural gas prices, energy suppliers face a highly regulated environment and have been suffering losses.

Last week, the energy giant announced it is launching a “strategic review” of its domestic energy and telecoms supply division in the UK, Germany and the Netherlands, adding leaving the business was also on the table.

The oil and gas behemoth told its staff in Shell Energy it has begun analysing its future options for the business, which could include exiting the sectors.

In the UK, Shell Energy has 1.4 million energy customers and about 500,000 broadband users and a headquarters near Coventry.

The company told staff that it had made the decision against a backdrop of a strategy which includes “continually exploring options to maximise the value of our portfolio and address performance in tough market conditions.”

Shell launched its home energy supply business in 2018 after acquiring supplier First Utility and rebranding the company to Shell Energy Retail in 2019.

While its retail division may be struggling, the energy giant has been among the many oil and gas companies reporting record profits in 2022 as wholesale commodities price skyrocketed following Russia’s invasion of Ukraine.

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In October, Shell Oil UK announced a doubling of its profits, stacking up £8billion in profits in just 13 weeks. But the UK-headquartered oil firm said it had not paid a windfall tax levy and did not expect to throughout 2022 as it spent large sums on drilling for more oil in the North Sea.

Energy suppliers in the UK have struggled to cope with soaring energy costs over the past two years, with over 30 energy companies going bust within the span of few months.

Bulb Energy was the largest among them to collapse into administration, leaving it under the control of Ofgem, the Government’s energy regulator, until its acquisition by Octopus Energy.

Shell said that so far “no decisions” had been taken on the future of its home retail businesses, adding that the review process would take “a number of months”.

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