Hudson Weir Pulls Plug on Energy Co Underlining Challenges Faced by Small Energy Suppliers
Introduction
GnERGY, a small energy supplier founded by retired Army Major Tikendra Dewan and run by a community of former Gurkha soldiers, succumbed to financial pressures in 2019. Operating out of Hampshire, GnERGY supplied around 10,000 customers, both households and small businesses, across the UK. Like several other small energy companies, GnERGY was unable to meet its regulatory obligations, leading to its eventual collapse.
This case explores the reasons behind GnERGY’s downfall, with insights from insolvency practitioner Hasib Howlader of Hudson Weir, who provide a broader perspective on the challenges faced by small energy suppliers in the UK.
Financial Struggles
The crux of GnERGY’s collapse centred around its failure to pay £673,877 in Renewables Obligation (RO) certificates, a green tax that energy suppliers must pay to fund the government’s renewable energy initiatives. GnERGY missed the October 31, 2019, deadline to pay these levies and was two months overdue when the collapse unfolded.
Despite negotiations with Ofgem, GnERGY’s request to pay the debt in instalments was rejected. The regulator, however, provided a temporary reprieve, allowing the company more time to secure funds, which GnERGY’s management insisted were imminent.
As Major Dewan sought further investment, he reassured Ofgem and customers that the firm would not lose its licence. However, GnERGY’s financial condition was bleak, with projected losses of between £100,000 and £200,000 for the financial year ending in March 2019. Without the necessary capital, GnERGY faced the possibility of losing its licence, which eventually resulted in Ofgem appointing a new supplier for its customers.
Insights from Hudson Weir
Market Challenges for Small Energy Firms
Hasib Howlader insolvency expert at Hudson Weir, commented on the structural difficulties small energy companies like GnERGY face:
“Small energy suppliers often operate with tight margins and lack the financial resilience to absorb market fluctuations or unexpected expenses. When faced with rising costs and regulatory obligations, they often struggle to survive without sufficient backing.”
“GnERGY’s inability to secure investment in time highlights this vulnerability. Despite the company’s niche market focus and community-driven ethos, it lacked the financial resources to cover its green tax obligations.”
“The increasing burden of regulatory compliance, coupled with high operational costs, leaves small energy suppliers at a disadvantage compared to larger, more established firms. Without substantial investment or external support, it is challenging for small players to maintain liquidity and stability.”
“The regulatory environment is becoming increasingly stringent for energy suppliers. While these regulations are essential for sustainability and consumer protection, small firms often do not have the infrastructure or capital reserves to cope with the financial demands. GnERGY’s collapse reflects the broader trend of small energy suppliers exiting the market.”
Market Environment and Broader Implications
GnERGY’s failure came during a tumultuous period for small energy suppliers in the UK and in 2019 alone, nine small energy companies exited the market due to financial difficulties. Another notable collapse was that of Breeze Energy, which failed to pay its £486,232 RO bill and left 18,000 domestic customers without a supplier.
The market conditions for small energy firms were, and continue to be, challenging. Rising wholesale prices, the cost of regulatory compliance, and competition from larger, more financially robust suppliers contributed to the wave of insolvencies among small energy companies.
While some companies, like Robin Hood Energy, were able to survive after securing external funding (in Robin Hood’s case, a £9 million loan from Nottingham City Council), GnERGY was unable to find a lifeline in time.
Ofgem’s Role and Customer Protections
When GnERGY failed to secure the necessary funds, Ofgem stepped in. The regulator has the authority to revoke a supplier’s licence if it fails to meet its obligations, particularly in paying RO certificates. Through Ofgem’s Supplier of Last Resort mechanism, GnERGY’s customers were transferred to another supplier to ensure continuity of service.
This mechanism is designed to protect consumers from being left without an energy supply, while also holding suppliers accountable for meeting regulatory requirements. Ofgem’s intervention minimised disruption for GnERGY’s 10,000 customers, though it raised questions about the viability of small suppliers in an increasingly regulated market.
Key Lessons
- Financial Resilience: GnERGY’s collapse highlights the importance of financial stability and the challenges small energy suppliers face in meeting regulatory obligations, particularly green taxes. Small firms need sufficient capital reserves or investment backing to navigate these financial pressures.
- Market Competition and Regulation: The competitive nature of the UK energy market, combined with rising costs and stricter regulations, makes it difficult for smaller players to survive. As Nimish Patel emphasised, small firms often operate on thin margins and are more vulnerable to market shifts.
- Investor Confidence: Securing external investment is crucial for small energy suppliers to remain afloat. In GnERGY’s case, the failure to attract timely investment contributed to its downfall. In contrast, Robin Hood Energy’s survival was bolstered by a significant financial injection from the local council.
- Consumer Protection Mechanisms: Ofgem’s role in protecting consumers was critical during GnERGY’s collapse. By swiftly transferring customers to a new supplier, Ofgem mitigated the impact of GnERGY’s insolvency on its customer base, demonstrating the effectiveness of regulatory safeguards.
Conclusion
The collapse of GnERGY is part of a broader trend of small energy suppliers struggling to survive in the UK’s increasingly competitive and regulated energy market. Despite its strong community ethos and the leadership of Major Tikendra Dewan, GnERGY was unable to overcome its financial challenges, leading to the revocation of its licence by Ofgem.
Hasib Howlader of Hudson Weir concludes:
“With rising costs, regulatory obligations, and tight margins, many small firms lack the financial resilience to withstand market pressures. For GnERGY, the failure to pay its renewables obligation bill and secure external investment ultimately led to its collapse. However, Ofgem’s intervention ensured that customers were protected, highlighting the importance of regulatory oversight in such situations.”
