Npower and E.ON, two of the UK’s Big Six suppliers, have cut their ties with the primary trade association of the country’s energy industry. Their reason for this decision is Energy UK’s bourgeoning membership fees that they deem are ‘too steep’ to pay.
In response, Energy UK recognised the increasingly challenging market environment that puts pressure on the retail sector. Both energy companies have been hit by several issues, which might have tipped the funnel towards their eventual withdrawal from the trade association.
Energy UK currently represents over 100 energy generation and supply businesses across the UK.
E.ON and Npower have called their relationship with Energy UK quits after deliberating that the membership costs have become too high to afford.
It was only recently that E.ON bought out Npower after the latter suffered increased losses in recent years. A major shakeup in the form of restructuring in November 2019 has led to over 4,500 job cuts and the permanent closure of several Npower call centres.
After suffering from losses of about €250 million in 2019, Npower had further taken a slump when it lost 261,000 clients in the third quarter.
E.ON also had its fair share of customer losses. In 2019’s first half, the firm lost as many as 400,000 clients, although it assured its stakeholders that the exodus of accounts stopped by July.
A spokesperson for E.ON indicated that the company could not put up with a loss-making enterprise for very long. After carefully reviewing costs, it admitted that they have to withdraw from their membership with the Energy UK, albeit reluctantly.
Energy UK stated that it hopes the two companies would return as members in the future when the market becomes less challenging.
Several energy suppliers have met fierce competition from challenger companies that have succeeded in attracting consumers. There is also the matter of reduced profits due to the imposed price cap on standard variable tariffs (SVTs) and default deals. Average earnings before tax and interest fell to only £71 million from £202 million in only the first half of 2019.
Marc Spieker, E.ON Chief Financial Officer, acknowledged the market’s current demanding condition that has put a strain on the already struggling company. However, he also stated that their team responded via new product offerings and better cost management.
While the energy industry has had ups and downs, no other Big Six member has taken a bigger hit than Npower. In 2018, the firm was supposed to merge retail divisions with SSE, another energy giant in the UK.
By November 2018, several industry experts suggested that the deal would be a no-go due to the introduction of the government’s price cap on energy. True enough, the companies issued a statement announcing the cancellation of the merger a month after rumours made the rounds.
SSE CEO Alistair Phillips-Davies called the deal a ‘complex transaction’ composed of several moving parts. The firm concluded that pursuing the merger would not benefit its customers. Although a hard decision, Phillips-Davies believed that deciding not to push through with the takeover was the right thing to do for the customers, shareholders, and employees of the company.
Aside from the price cap, both companies also cited faltering business performance and increased market competition as other significant reasons why the deal failed to move forward after the announcement.
An asset swap involving Npower owner RWE and E.ON took place, which explains how E.ON ended up supplying the struggling company after the abandoned merger.
The Npower brand is expected to gradually disappear, with more job losses and customers switching to E.ON over the next two years.
E.ON UK CEO, Michael Lewis stated that the job cuts were a necessary procedure since Npower has lost significant profits for several years. He continued that the price cap was detrimental to the company’s performance, which is why E.ON is doing everything to make the business sustainable and secure employee’s jobs along the way.