Big six energy supplier Npower will shed 900 jobs, 15% of its UK workforce, as it warns it will post significant financial losses this year.
The German-owned supplier cited the government’s price cap on default tariffs and “intense competition” over fixed energy deals for the job cuts.
Npower Chief executive Paul Coffey said the retail energy market had become “incredibly tough.” He warned about effect on the sector of what he described as unsustainable pricing practices from upstart energy firms, 11 of which have collapsed since the beginning of 2018.
“The retail energy market is incredibly tough. Ofgem forecasts that five of the big six energy companies will make a loss or less than normal profits this year owing to the implementation of the price cap. And with several recent failures of new energy suppliers, it is clear that many have been pricing at levels that are not sustainable,” Coffey said.
The price cap on default tariffs, introduced 1 January, is forecast by Ofgem to collectively save consumers around £1 billion a year on energy bills. It will also knock 5% off the profits of energy companies, which have already cautioned investors and regulators about the impact.
At the end of 2018, Npower and fellow Big Six supplier SSE cancelled their planned merger, citing “challenging conditions” including the price cap and fierce competition across the sector.
Firms have also disputed the way Ofgem use wholesale prices to calculator the cap, with British Gas owner Centrica mounting a legal challenge to it.
In January Ofgem chief executive Dermot Nolan indicated the cap would likely be raised during its scheduled, semi-annual adjustment in April. The adjustment could add £100 back onto the bills of households on standard variable tariffs.
Npower’s struggles predate the energy cap, however. It shed half a million customer accounts in 2018, a tenth of the 5 million accounts it held at the beginning of the year, as the market share for the Big Six slipped to 75% for the first time. Consumers have been pursuing cheap tariffs to small competitor suppliers, with rates of switching up 6% in 2018, according to industry body Energy UK.
Meanwhile, all Big six suppliers came in the bottom third of Which?’s annual customer satisfaction survey, with Npower coming in 27th place out of 30 ranked suppliers. Which? found that a third of Npower’s subscribers found it “poor” or “very poor” value for money.
Npower made its fourth consecutive year of losses in 2018 and Coffey warned that the firm was forecasting “significant losses” over 2019, even with savings from the planned job cuts.
Innogy SE, Npower’s German owner, has already cautioned that Npower could hit its overall group profits by as much as €250m (£218m) in 2019. Ownership of Npower is in the process of being transferred from Innogy to fellow German firm E.ON as part of an asset swap. Further job cuts are anticipated with this change of ownership.
Unite national officer Peter McIntosh said the 900 job losses was “shocking news.”
“We will be seeking an urgent meeting with management to examine the business rationalise behind this announcement. We don’t believe that these job losses are solely down to Ofgem’s price cap,” he said.
The government also disputed that the price cap was responsible for the job cuts. “Ofgem designed the energy price cap independently, through consultation with industry, so that an efficient supplier can continue to thrive,” a spokesperson for the Department of Business, Energy and Industry Strategy said.