For many energy professionals, coming back to work after the Christmas break may well be with a sense of doom. For let’s face it, the second half of 2018 was not great for many in the industry. A catalogue of supplier failures, the finalisation of the price cap, closure of ROC and FIT schemes, withdrawal (hopefully temporarily) of the Capacity Market and the hatchet poised over embedded benefits, has left many business models and investor confidences shaken. The SSE/Npower merger is off, and it is being reported that the Npower supply business will now form part of E.ON under the Innogy asset swap deal, which is not necessarily a marriage made in heaven from either side’s perspective. And we’ve not even had a cold snap yet….
So for many, coming back to work after some time off may well be tainted by the fear of job security or frustration at the additional pressures caused by fundamental business underperformance against targets. There is broad consensus that there are further supplier failures to come, and even over the Christmas period we’ve seen Economy Energy scrabbling to raise finance to avoid being the next victim.
So why in this environment am I still very upbeat about prospects for 2019?
Firstly, having been in this industry for a long time, I’m firmly of the view that change whether planned or unplanned nearly always results in better outcomes for both businesses and individuals. We all operate in a fast moving and complex market which has a unique combination of regulatory and market pressures in addition to the fact that access to energy is rightly treated as a fundamental human right. So whilst, we may not always be in control of the outcomes, the industry is here to stay which means that there is a need for businesses to operate in it, lead and delivered by people who have the expertise to understand its intricacies.
In reality, the current shake out of the retail market has been coming for some time. Too many businesses were set up which did not have the right ingredients to make a success of it. We shouldn’t be surprised that there are some failures in a competitive market, and the combination of approaching winter, rising wholesale prices and ROC/FIT payments due has crystallised the inevitable. The good news is that there are still far more players successfully operating in the market than ever in the past.
In my view the historic retail model is dead. The ability to make ‘superprofits’ from dormant customers has been removed, the race to the bottom accelerated by the proliferation of Price Comparison Websites is not sustainable, and the growth of informed consumers means that they want more for less- not easy in a world where margins have been squeezed to squeaking point. Running a retail business is incredibly complex and requires laser focus on cash, risk management and super slick operations in order to have a chance to succeed. However, what is also now needed are new products and services to generate additional profit streams- potentially win, win for consumer and business.
Equally, on the generation side, the small scale development bubble has burst. Without guaranteed income streams from government sponsored schemes propped up by revenue certainty from embedded benefits, investors are now once again over exposed to wholesale market conditions and therefore left scratching heads on what to do next. On the positive side, capital availability does not seem to be the issue.
So carrying on doing what has always been done on both sides of the market is no longer an option. - change has become a necessity.
And the good news is that there are businesses with innovative mindsets who are embracing this change and are either entering the market or already operating in it. We are starting to see some genuinely new models and products in the market which have not been forthcoming in some time. This is in the main fuelled by the convergence of supply, demand and storage at increasingly smaller scale and genuine entrepreneurship. The businesses who are focused on the developing market rather than the historic market, potentially unencumbered with legacy issues, will be the ones that we will see flourish and continue to grow.
For many, we’re not quite there- There are some brilliant businesses trying to get out in the technology and demand side management space and the market conditions are slowly slowly moving towards enabling financial success in these businesses. Hopefully a combination of convergence, co-operation and optimisation can result in these emerging genuinely new and exciting business models which can succeed as the market shifts. Taking a calculated risk may be necessary in the short term but all the pointers are there to support them. And the good news is that there is evidence across the board that these shifts in structures and taking of risks are starting to play out profitably in new market models without the need to rely on government incentives.
For people, many of whom will spin out of current business mergers and failures, opportunities have never been so plentiful. This market genuinely relies on expertise, whether technical, regulatory or operational. With a polished CV and the help of expert industry specialist recruiters, there is the emergence of a fantastic migratory talent pool and the need for exactly the skills which are becoming available. For businesses in this market to succeed, it can’t just be about personality and behaviours- industry knowledge and expertise must underpin business leadership and operational teams. For those willing to proactively develop their careers, there are undoubtedly great opportunities available.
So whilst uncertain times for many, for those willing to embrace change, take a risk and ride what is undoubtedly the most exciting times in the energy market in my career, 2019 looks like it’s shaping up to be a great one. Wishing a very Happy New Year to all my colleagues and friends in the industry.