Energy price freeze puts ten small suppliers at risk
A FREEZE on prices by three of the Big Six energy suppliers will put pressure on smaller rivals and could see up to ten firms forced out of business, say industry experts.
British Gas, E.On and SSE have all pledged to freeze prices on standard tariffs over the winter, even though the wholesale price of energy has risen sharply in recent months.
Smaller independent energy providers are less able to absorb increases in wholesale costs so the discount they can offer compared with bigger suppliers is reduced.
There has been a 32 per cent rise in the wholesale price of gas and a 42 per cent increase in the wholesale price of electricity since June.
Smaller suppliers tend to buy their energy for use immediately or shortly afterwards, while the larger providers can pay for energy now which will be used up to two years later. This allows them to smooth out short-term price fluctuations.
Peter Atherton, an associate at consultancy Cornwall Energy, said: ‘Could smaller firms go under? Yes. The energy market has been very favourable for smaller independent suppliers for the last few years as power prices have been falling in the wholesale markets and there has not been much volatility – and that works in their favour.
‘But that’s changed now and the independents are facing very volatile wholesale markets, so their costs have been rising.’
Independent energy provider GB Energy collapsed last month blaming rises in energy prices. Its 160,000 customers were taken on by Co-operative Energy.
One senior energy executive said: ‘What will be the effect of the price freeze on smaller firms’ short-term price hedging? The industry reckons it could see ten firms go out of business.’
There are about 40 smaller suppliers in the energy market. However, the Big Six still dominate with about 88 per cent of customers.