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NEWS: The impact of COVID-19 on Energy Suppliers

Written by

Sarah Smith, Head of Consulting & Regulations

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The immediate impact of COVID-19 on energy suppliers

As the COVID-19 pandemic spreads across the UK, many businesses, including energy suppliers, are frantically trying to interpret government advice and look after colleagues and customers. There are multiple complex decisions being made in order to support business continuity. For example, how to manage contact centre and back office activity in the context of government advice around social distancing and self-isolation.

Remote working will be a challenge for many companies, particularly those with large numbers of staff working from desktops or where close monitoring of call and webchat queues is necessary for smooth running of the business. Additional complexity will be added when schools and nurseries close.

Those companies with a highly engaged and motivated workforce, good operational MI, robust tools for accessing systems and video conferencing, and a culture which identifies and reacts to mental health difficulties and fosters a good team spirit will be in the best position to weather the storm.

The new norm and longer-term impacts on the economy and suppliers

But as the dust settles and home working becomes the norm, there could be a profound effect on the energy industry. There is uncertainty about how long ‘social distancing’ measures might last. The government are talking about at least 12 weeks and modelling by Imperial College London suggests that it will be required until there is a vaccine, in around 12 - 18 months’ time.

The economic impacts of this will be profound for businesses and families alike. There is currently no suggestion that the government’s financial measures will be directed towards the energy industry. As a result, although changes and challenges will be different for both B2B and B2C suppliers, both will be impacted.

For the energy suppliers who have been transitioning their technology infrastructure over the last few years to a Software-as-a-Service platform, it should be a smoother transition to the home working movement. Using a platform that enables working through the web, will allow companies to continue providing as normal a service as possible for their customers. It should also ease the pressure on employees and provide more flexibility.

Impacts for B2B suppliers

Economic impacts across many business sectors are expected to be large and long lasting. Even with financial support from the government, some companies in the hospitality sector, shops which sell non-essential items, manufacturing and professional services will inevitably fail. Those that don’t will face a long period of hardship before being able to demonstrate their resilience.

What can B2B energy suppliers do?

It is essential that energy suppliers are able to segment their customer base to identify high risk companies and build robust credit management processes to minimise their exposure. This may include implementing policies to exclude certain company types from registering as a customer or requesting larger than usual security deposits from them.

Customers may request more flexibility in their payment plans or ask for payment holidays, all of which will need to be reviewed and managed. This may be particularly prevalent in industries that are provided with financial support like the hospitality sector, as cash flow issues will almost certainly become a greater risk rather than profitability.

It is also worth considering that many companies may reduce their energy consumption as a result of reduced footfall or workforces during this period. This could result in estimation calculations not being accurate and an overstatement of the debt position. Suppliers should consider a campaign to collect meter readings to ensure accurate billing.

The increase in home working and potential for businesses to fail is likely to lead to uncertainty in energy demand forecasting. A likely reduction in demand would require energy suppliers to adjust their hedge position, which is particularly challenging given recent falls in gas prices. Close monitoring of demand forecasts and hedge positions is recommended.

Impacts for B2C energy suppliers

There will be different pressures on B2C suppliers. There is an opportunity to expand the portfolio, as consumers remain at home for extended periods of time and try to manage their finances and switch energy provider. However, there will be a large increase in the number of families going into fuel poverty as employers lay off staff or ask them to take extended periods of unpaid leave. BEIS have suggested that as many as 20% of residential customers could default on their bills. There could also be many people dealing with the impact of the disease on themselves or their families, for whom payment of utility bills is not a top priority or a task that can be carried out by others in the household.

How can B2C suppliers react?

Suppliers servicing residential customers should prepare themselves for a large volume of switching over the coming months and ensure that they have competitive offerings in the market. They should also ensure that their debt processes and policies have been reviewed in light of coronavirus and take vulnerability of customers and emergency measures agreed with the government into account.

Other industries in the UK (such as mortgage providers) and energy suppliers in other countries (such as Australia) are being asked to provide customers with payment holidays through the outbreak. Suppliers should consider the impact of such an obligation on their business model.

In direct contrast to B2B, it is likely that residential customers will increase their energy consumption, and additional effort should be spent collecting actual reads to ensure there is no bill shock. Equally the point around close monitoring of demand forecasting and hedge positions holds true here. Finally, there may be an opportunity to learn from the water industry, where customer service experts support vulnerable customers in understanding and applying for the benefits and tax credits they are entitled to.

Government support following the impact on suppliers

The impact on suppliers could be existential in these difficult and uncertain times. ENSEK will be lobbying BEIS and Ofgem for support for suppliers, to ensure there is as little negative impact as possible on our sector in such turbulent times. This includes minimising the impact on consumers over the coming months, as situations change daily.

If you would like any support on debt and vulnerable policies and processes or would like to be input into our letter to BEIS and Ofgem please contact Sarah Smith, Head of Consulting and Regulation.

[Written with the knowledge of the current climate at time of publishing: 19/03/2020]

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