News & Analysis

Are we heading for an energy monopoly? Yet another provider goes to the wall

Andrew Saks, Tuesday, 23 November 2021

During the 1980s and early 1990s, an era of great hope and individual empowerment came about for British households as the gargantuan, government-owned, inefficient monopolies that operated energy supplies to homes and businesses began to be privatized, and the market was opened up to allow unlimited competitors from all over the world to provide electricity and gas across the country.

The anodyne offices of British Gas and the heavily unionized electricity boards, awash with bureaucracy and inefficiency were about to be a thing of the past.

In came publicly listed bastions of efficiency from across the globe and allowed British consumers to not only keep a check on how much they were paying for their power and heating, but also to own shares in their providers.

Households across the nation woke up to affordably heated homes and watched Prime Minister Margaret Thatcher on the news lauding the success of such a free market.

Those days unfortunately are now over. Rampant energy price rises, inflation and supply chain mismanagement caused by lockdowns, travel restrictions and the ensuing economic disaster that has arisen from almost two years of unprecedented political oddity have created an energy industry black hole.

In the United Kingdom alone, an astonishing 22 energy companies have gone bust and exited the market in the latter half of this year alone...

Oh, wait a minute. Make that 23.

This morning, Bulb, which had been until now the 7th largest energy provider in Britain, has been placed into administration. It has 1.7 million customers who will now be forced to move away from their provider of choice, and given that 22 others have fallen foul of the conditions, the question will likely be where will they go to get a good deal?

Although the energy market is not yet being plunged back into the state-owned dark ages of the 1970s, Shell Energy, British Gas and Octopus Energy remain non-nationalized, and are publicly listed leviathans on the London Stock Exchange.

An important matter to consider, however, is whether the energy industry in the United Kingdom is heading toward becoming an oligarchy, as almost all competition has been wiped out in a very short space of time, among the backdrop of rising prices.

If there are few suppliers, little competition and a supply chain that keeps faltering despite the clear abundance of oil and gas in the OPEC nations, perhaps consumers may find that those few remaining companies will ramp up the prices and reap the rewards whilst making energy even less affordable than it already is.

Currently, Bulb will continue to operate as normal whilst it is under its administration, however this is a clear sign that the company is in financial dire straits and would easily be out of the market as quickly as it entered.

Also, there may be an exodus of customers as larger firms try to buy up the client base for cheap in order to help the administrators recoup money - and lets be fair, that's what administrators are there for, to quickly bring in a percentage pence in the pound and reduce the liability - or naturally drift to larger firms in case they are left without supply should Bulb go the way of the 22 other casualties.

Therefore, gas and oil, despite their abundance, are now prized commodities on the markets. Oil remains steady at $75.2 per barrel as of this morning UK time, however many analysts are saying that natural gas prices are set for a volatile winter, with the weather being the single biggest factor driving both demand and sentiment.

Given that plus the suppliers going out of business, the indicators are that gas is likely to be an asset class to watch.

Tell any employee at Gazprom, however, that there is a shortage and they would likely laugh such a comment out of the room.

Share article