Why SSE’s tie-up with Npower will spark com­pe­ti­tion

The Daily Telegraph - Business - - Business Comment - ALIS­TAIR PHILLIPS-DAVIES Alis­tair Phillips-Davies is the chief ex­ec­u­tive of SSE

Ofgem re­cently pub­lished its an­nual “State of the Mar­ket” re­port, giv­ing its as­sess­ment of how well the en­ergy mar­ket is work­ing for con­sumers in terms of com­pe­ti­tion, af­ford­abil­ity, de­car­bon­i­sa­tion, and se­cu­rity of sup­ply. In it, chief ex­ec­u­tive Der­mot Nolan ob­served: “En­ergy mar­kets are rapidly chang­ing to meet our need for clean, se­cure and af­ford­able en­ergy and to ac­com­mo­date a trans­for­ma­tion in the way we con­sume en­ergy. The pace and scale of changes are un­like any­thing we’ve ever seen in the sec­tor.”

As some­one who has worked in the en­ergy in­dus­try for a long time, I’d agree with him. Tech­nolo­gies are chang­ing, as are con­sumer habits. I’ve al­ways ac­cepted pol­i­tics and reg­u­la­tion will play a sig­nif­i­cant part in the en­ergy sec­tor and there is no doubt Bri­tain’s en­ergy sup­ply mar­ket has been the sub­ject of in­tense scru­tiny for a long time.

All of these rea­sons are why we have a stated com­mit­ment to em­brace change in each of our busi­nesses, adapt­ing them to the po­lit­i­cal, eco­nomic, so­cial and tech­no­log­i­cal re­quire­ments of cus­tomers and of so­ci­ety as a whole. Last week we an­nounced plans to merge SSE’s house­hold en­ergy and ser­vices busi­ness in Great Bri­tain with that of Npower to cre­ate, sub­ject to reg­u­la­tory ap­provals, a new, in­de­pen­dent com­pany to be listed on the stock ex­change.

Sun­day’s edi­tion of this news­pa­per asked whether the “lights” had “gone out on the Big Six”, sug­gest­ing that two of the largest house­hold sup­pli­ers had ef­fec­tively “thrown in the towel”. In­cor­rect. It’s true that the mar­ket has moved on con­sid­er­ably from the days of the so-called “Big Six” but this merger is about em­brac­ing change in the mar­ket, not run­ning from it.

There are now 60, not six, sup­pli­ers in a mar­ket in which com­pe­ti­tion is stronger than ever. Over half a mil­lion cus­tomers switched sup­plier in Septem­ber alone with new entrants grow­ing their mar­ket share from 1pc to more like 20pc in just a few years.

So, this is not a case of six into five; it’s more like 60 into 59. And, as a re­sult of this merger, one of those 59 will of­fer a com­pletely new model that com­bines the re­sources of es­tab­lished play­ers with the agility and in­no­va­tion of an in­de­pen­dent sup­plier.

We’ve al­ready taken sig­nif­i­cant steps to re­main com­pet­i­tive amid the rapid changes we’ve seen in the mar­ket. Since Ofgem be­gan its re­port­ing in 2009, SSE has gen­er­ally had the low­est “cost to serve” of all sup­pli­ers cov­ered, typ­i­cally 10pc to 30pc be­low in­dus­try av­er­ages. Meet­ing our cus­tomers’ needs ef­fi­ciently is a key rea­son why we’ve been able to earn a profit; we’ve taken over £225m of cost out of our busi­ness in re­cent years and con­tinue to cut costs. Not ev­ery large en­ergy sup­plier earns a profit ev­ery year, which il­lus­trates just how com­pet­i­tive the mar­ket has be­come.

As well as oper­at­ing ef­fi­ciently, we have to earn the loy­alty of our cus­tomers by pro­vid­ing a high-qual­ity ser­vice. It’s a lit­tle known fact that the in­de­pen­dent Cit­i­zens Ad­vice en­ergy sup­plier per­for­mance rank­ings, which are up­dated quar­terly and eval­u­ate the 18 largest en­ergy sup­pli­ers on a wide range of met­rics, cur­rently show SSE to be the best per­form­ing of all 18 sup­pli­ers, big or small. But we need to do more to keep pace with the change we are see­ing. In my opin­ion a lot more has al­ready changed in re­cent years than is of­ten recog­nised. But in propos­ing this merger we aim to take this to a new level, adapt­ing to the pace of com­pet­i­tive, tech­no­log­i­cal and be­havioural changes that are trans­form­ing this mar­ket.

That is what this merger is all about. As Sun­day’s piece put it, by estab­lish­ing a com­bined busi­ness that is com­pletely in­de­pen­dent and ex­clu­sively fo­cused on meet­ing the chang­ing needs of its re­tail cus­tomers we will cre­ate a to­tally dif­fer­ent model with the po­ten­tial to shake up the mar­ket and “stand at the fore­front of an in­dus­try that is on the brink of rein­ven­tion”.

SSE will re­main a bal­anced group of re­lated busi­nesses, spe­cial­is­ing in the en­ergy, in­fra­struc­ture and ser­vices needed to sup­port the tran­si­tion to a lower-car­bon fu­ture, with a strong fo­cus on as­sets, but con­tin­u­ing to serve busi­nesses and cus­tomers in Ire­land.

Mean­while, the new, in­de­pen­dent com­pany will seek to com­bine the best of both re­tail busi­nesses and be bet­ter placed to face the chal­lenges – and pur­sue the op­por­tu­ni­ties – emerg­ing in the en­ergy re­tail mar­ket in Great Bri­tain. It will be more ag­ile, in­no­va­tive and ef­fi­cient with a ded­i­cated man­age­ment team and a com­plete fo­cus on re­tail cus­tomers.

Cre­at­ing a new com­pany by com­bin­ing ex­ist­ing busi­nesses al­ways brings chal­lenges, but we have real and rel­e­vant ex­pe­ri­ence of do­ing this and a com­mit­ment to mak­ing cus­tomers’ ex­pe­ri­ence of the change as seam­less as pos­si­ble.

I see this as a wa­ter­shed mo­ment for Bri­tain’s en­ergy sup­ply sec­tor. We have iden­ti­fied an op­por­tu­nity to cre­ate a new type of sup­plier to chal­lenge es­tab­lished and newer sup­pli­ers alike. It will help drive com­pe­ti­tion and ul­ti­mately that’s good news for cus­tomers.

In do­ing this we will give our re­tail busi­ness the best pos­si­ble plat­form for suc­cess in the long term and I hope that those call­ing for greater com­pe­ti­tion and change in the en­ergy mar­ket will sup­port this pro­posed merger and the ben­e­fits that it will bring cus­tomers.

‘The mar­ket has moved on from the days of the Big Six but the merger is about em­brac­ing change, not run­ning from it’

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