If Ovo Energy’s proposed takeover of SSE's retail business goes ahead, it will be a game-changer and mark a coming of age for the competitive retail energy market.
There are decades where nothing happens; and there are weeks where decades happen. Boris Johnsons senior adviser Dominic Cummings is apparently fond of this Lenin quote on the rapidity of change and we may well be seeing this in the energy market.
After over 15 years of dominance by the big six, in the past few weeks we have seen Ovo’s proposed acquisition of SSE and the announcement of Innogy SE and its associated Npower operation.
Does the Ovo acquisition mark the point at which the gradual erosion of the big six tips us over into a new type of market?
Good news for the market
This is positive news for a market where there have been concerns about many companies’ longevity and ability to make money. Several of the big six are rumoured to have been actively considering exit and Centrica’s recent results again highlighted their challenges.
An energy seminar in September estimated that failed suppliers have cost creditors 78 million and there are worries that market activity focuses on engaged customers who switch and switch again, while sticky customers remain stuck.
Against this backdrop, Ovo is a young, agile, successful company that has demonstrated that it believes passionately in the market and in all types of customers, and challenges other suppliers to raise their games.
Good news for customers
The proposed acquisition should also be positive news for customers. A company built on the green energy agenda, excellent customer service it has been named best uSwitch supplier for four out of five years and innovative propositions on whole energy management, is moving firmly into the mass market.
This is good for the governments goals to green our energy supply and deliver net zero carbon by 2050. More marketing of and accessibility to these propositions can only help stimulate awareness and market push so the required regulatory and physical infrastructures are in place.
The risks are that Ovo could become embroiled in trying to integrate a monolithic supplier and discovering that its innovative offerings fail to resonate with SSEs sticky customers and we end up with a big six again, but one will have a different name.
Challenges for Ovo
Ovo certainly faces significant challenges. Whole energy provision provides the opportunity to build a more meaningful and long-term relationship with customers; but how does this approach, which requires installation of expensive assets, fit into a world of next-day switching, where Auto Sergei offers to automatically flip you to the best deal?
Second, Ovo will have to work hard on its new customer base. SSE has lost one third of its customers since 2010 and they are likely to be those who are engaged with and active in the market exactly the type of customers who would be receptive to Ovo’s innovative offerings. Those who remain may be harder to win over.
Third, there is the integration headache how to eat the elephant. There will be major work needed on branding and organisation and aligning SSE's staff with Ovo’s culture and approach and, of course, IT and data. SSE currently uses a customer service and billing solution that was originally implemented in the nineties, migrating this to its own systems must avoid any impact on customer service that could damage the brand.
The future holds innovation
It should be possible to solve these challenges and the extension of the smart meter deadline removes one completely unrealistic burden. Ovo’s vision is in line with that of the Department for Business, Energy and Industrial Strategy and with Ofgem’s approach as they consider pilots and supporting regulatory infrastructure, and as other suppliers see an opportunity for market transformation.
Companies from Octopus, with its half-hourly pricing trial, to British Gas’s plans to use its customers hot water tanks to create a virtual power plant, are introducing innovation.
While Ovo will have a mountain to climb if the acquisition goes ahead, on the other side the new dawn will bring benefits to customers, to the vibrancy of the energy market and to the UKs carbon ambitions, and we should wish them success with it.