Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Brexit Currency Wobbles May Hit More U.K. Energy Suppliers

Stock Markets Oct 08, 2019 03:52AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

(Bloomberg) -- Britain’s consumer energy suppliers are already being squeezed by regulators and tight margins in the electricity market. Brexit may add to that pain.

Efforts by the U.K. to exit the European Union have depressed the value of the pound, adding to the cost utilities pay for importing supplies from the rest of Europe. A further drop could worsen the finances for the companies that sell power and natural gas at the retail level -- at least 16 of which have folded since the Brexit vote in 2016.

“Currency risks are the biggest short-term risks, rather than security of supply,” said Jeremy Nicholson, corporate affairs officer at Alfa Energy Ltd., a London-based consultant that handled about $2 billion of energy trading last year. Alfa advises on energy purchases for airlines, schools, housing companies and manufacturers.

That view, echoed by regulators and other industry participants, highlights the risks of unintended consequences from Brexit unraveling government efforts to spur competition in the electricity business. Dozens of companies from Ovo Energy Ltd. to Bulb Energy Ltd. have sprung up in the U.K. as the Conservative government sought to bring even more players to into energy markets dominated by big utilities.

While the incumbents have more sophisticated trading floors and hedging operations to anticipate market swings, the smaller players have been caught out in recent months. Two went bust in August alone.

That makes the small suppliers one of the only potential victims of Brexit in the energy industry, where executives anticipate power and gas will keep flowing regardless of how trade rules change.

The pound has dropped about 15% since the 2016 Brexit vote. Wholesale power prices are lower than the four-year average because natural gas prices have dropped. While customer bills are only adjusted once a year or less, market prices can change overnight. Companies must cope with those fluctuations.

“There are a range of shocks -- wholesale prices could be affected by exchange rate moves,” Joe Perkins, the chief economist at regulator Ofgem, said in an interview in London. “We do monitor that pretty closely.”

The U.K.’s biggest utilities include Centrica PLC (LON:CNA) Electricite de France SA (PA:EDF), Innogy's (DE:IGY) Npower unit, Iberdrola's (MC:IBE) ScottishPower business and E.ON (DE:EONGn).

The companies in the next tier down are boosting share. That group includes Bulb and Ovo, which is buying the retail arm of SSE PLC (LON:SSE).

It’s the smaller suppliers that are most at risk, with some exiting the market after they failed to hedge wholesale price risks properly when they surged early 2018 because of cold snaps dubbed “beasts from the east,” Ofgem said in a report last week. Medium-sized utilities have fared better in the market than the smallest new entrants, it said.

Robin Hood Energy Ltd., which owes Ofgem 9.4 million pounds ($11.5 million) under a program to enforce more use of renewables, said “we operate in a tough market, but we remain on track to report a surplus for this financial year and next.”

A no-deal Brexit is one of many possibilities Robin Hood is preparing for at the end of the month, according to head of marketing and acquisitions, Richard Johnson.

“There’s the potential of a general election, the potential of a no-deal Brexit - all of that could or could not potentially affect trading,” he said by phone.

The uncertainty around Brexit is limiting opportunity for Brits Energy Ltd., chief executive officer Ahmad Mohseni said by phone. Currency fluctuations “will definitely have an impact,” he said.

“If the value of sterling goes down we’d still have an opportunity to export, but imports may not be as attractive,” he said. “I guess when Brexit happens we’re going to take some pain but it’ll subside after a few years.”

The government has held discussions with industry groups around the country to prepare businesses for Brexit. “Smaller energy firms are still finding it challenging to prepare themselves though, as they often don’t have the resources or financial support,” said Tanisha Beebee, a senior energy adviser at the CBI, Britain’s main business lobby group.

There are currently five interconnectors that enable electricity trade between Britain and other jurisdictions. In the first quarter, electricity imports through those links hit a record 7% of total demand. Six new links -- with Denmark, France, Ireland and Norway -- are under construction, which should about double import capacity.

Because the U.K. and its neighbors rely on each other as they use cross-border trade to help keep power and gas prices low, analysts are not expecting supply disruptions. Still, the utilities themselves and the regulator are mindful of price surges.

For U.K. energy suppliers as a whole, the most “problematic” issue is that the entire industry bears some of the cost of failures in the system, said Ofgem’s Perkins. The regulator is looking at whether to make it harder for new businesses to enter the market, which may ensure that future suppliers are more financially robust.

“We are thinking of changing essentially the license conditions for suppliers, which will hopefully make sure suppliers are very protective of consumers’ interests and perhaps more fiscally prudent as well,” Perkins said.

Brexit Currency Wobbles May Hit More U.K. Energy Suppliers

Related Articles

Former Deutsche Bank co-CEO Anshu Jain dies
Former Deutsche Bank co-CEO Anshu Jain dies By Reuters - Aug 13, 2022 2

(Reuters) -Anshu Jain, a top finance executive best known for helping German lender Deutsche Bank AG (NYSE:DB) take on the largest Wall Street firms, died overnight on Saturday...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email