Oil and gas giant Shell is to attempt to break into the UK domestic energy market by entering into a purchase agreement for independent supplier First Utility.
The move is a direct challenge from Shell to the UK’s current Big Six household energy suppliers – First Utility is the largest non-Big Six supplier in the country.
As the biggest independent supplier in the country, First Utility currently provides energy to around 850,000 homes. Following the upcoming merger of Npower and SSE, it is likely to subsequently be considered one of the Big Six itself.
Shell’s financial capabilities will provide First Utility with a safety net that will allow it to continue to sustain losses (such as last year’s £12.7 million loss) by offering low prices to entice new customers, particularly once the government’s energy price cap is introduced in 2019.
Currently, the UK’s many smaller energy suppliers (which number over 50) struggle to compete sustainably with larger suppliers when it comes to pricing. Larger suppliers are able to hedge their outgoings by buying up energy for future years when wholesale prices are low and to sustain losses by keeping their prices low when wholesale costs are higher.
Smaller suppliers do not tend to have the same capability and, as a result, their lifespans can be far more precarious, and they can end up failing without external support.
Partly for this reason, it is expected that more mergers and buy-outs may be on the cards in the coming years.
Shell has been supplying wholesale energy for use in the domestic energy market for some time now, including to First Utility, and its impending purchase of the supplier (which is still subject to regulatory approval) is more than likely the first, rather than final, step into direct supplying to homes. Mark Gainsborough, head of new energies at Shell, is quoted by the Financial Times as saying that the company “[has] the ambition to grow” in the UK’s domestic supply market.
Darren Braham, co-founder of First Utility, said: “Shell is the ideal business to acquire us. They have an excellent understanding of the business and our people and share our enthusiasm for the opportunities to help customers take even greater control of their household services.”
This move of Shell’s follows several from their new energies division all directed at diversifying and modernising the company’s operations, including buying into a major European electric vehicle charging company and massively increasing its expenditure on green energy production.