Saturday, January 08, 2022
Discounters pull rip cord
Low-cost providers groan under high energy prices
From Marina Zapf
In the past year, many low-cost providers of electricity and gas fell victim to the high raw material prices. Your business model is simply no longer working. Customers are left behind. They are taken care of by basic providers – but at hefty prices.
It’s a bankruptcy wave for the British. In 2021, around 40 energy traders ceased operations on the island – with around two million customers. In Germany the situation seems less acute. However, high raw material prices are now causing energy giants like Uniper to get into trouble. The producer had to secure a financing buffer and justified this with the extremely volatile market environment. And the price explosion in the second half of 2021 also claimed an above-average number of victims among the low-cost providers of electricity and gas. Their business model of fast, cheap shopping on the spot market no longer works.
Dozens of low-cost providers could no longer pass on the drastic additional costs of procurement to their customers because of the mostly fixed price agreements in long-term contracts. According to the Federal Network Agency, 39 energy suppliers across Germany reported the end of their supplies last year – twice as many as the average for the past five years. Of these, 29 only served electricity customers, four only gas customers and six providers traded in electricity and gas.
The last discounter to pull the rip cord for the time being was the nationwide Rhenish discounter Stromio, which, like its sister company Gas.de and the joint brand Grünwelt Energie, belongs to a Dutch group of companies. Neckermann Strom had previously filed for bankruptcy, other providers such as the green electricity supplier Enqu, Berla Energie, Smiling Green Energy and Lition Energie withdrew. Sales brands such as Wunderwerk, Fuxx, Grüner Funke or Immergrün and Meisterstrom had already gone off the market in October.
DiscounterBusiness model worked well for years
The customers are probably not left sitting in the dark winter cold. They are taken care of by the regional basic supply networks – but at hefty prices. The municipal utilities are often the most expensive suppliers in the liberalized energy market. At the turn of the year, the number of stranded customers also increased the tariffs.
The operators cite the expensive subsequent purchase of electricity and gas at currently higher prices. Where no change to cheaper tariffs is offered, there is a risk of substantial additional costs. For the basic gas supply, the price comparison portal Check24 names price increases of more than 50 percent on average, for electricity of more than 63 percent.
Despite the tendency for energy prices to rise slightly over the past two years, the discounters’ business model of luring away customers with cheap tariffs has worked well for years. Now the electricity price on the exchange rose to over 250 euros per megawatt hour by Christmas week – around six times as high as a year earlier. The purchase of gas tripled in the course of 2021. Consumer advocates do not dare to say whether the market shakeout will last and whether further bankruptcies are threatened. But there is probably no all-clear on the price front.
“Extremely dynamic situation on the gas market”
So much points to a permanent setback for the variety of providers, which had increased significantly in recent years to the benefit of end customers. Check24 alone has over 30,000 different electricity and gas tariffs in the price comparison. However, the portal itself has recently pointed out on its website that “when comparing gas, the range of tariffs may temporarily be lower” than usual. Due to the “extremely dynamic situation on the gas market”, many gas providers recalculated their tariffs.
Before the drastic price increase in the second half of 2021, it was still the energy customers who quit their providers in a row. The Federal Network Agency found in its monitoring report that the willingness to switch had increased in 2020 compared to the previous year. Accordingly, more than 1.6 million gas customers switched to cheaper suppliers – which was a new high. Around 5.4 million household customers opted for a new electricity supplier, which corresponds to a switching rate of eleven percent.
The bottom line, according to the network agency’s calculation as of April 2021, was more than every third household obtained its energy from so-called low-cost providers – with 38 percent for electricity and 35 percent for gas. German households were able to choose from an average of 113 different suppliers for gas supply and 142 suppliers for electricity. In each case, more than a hundred alternative suppliers made nationwide offers, even though the vast majority of discounters are keen to poach regional customers from the basic suppliers.
Power relations in the electricity market
Despite the diverse competition, experts warn against automatically inferring a high degree of competition from the large number of market participants. “The position of the basic suppliers in their respective supply areas remains strong,” state the network agency and the Federal Cartel Office. In the case of gas, around half of the 12.8 million household customers get stuck in cheaper tariffs from regional (basic) suppliers, and a further 17 percent in traditional, expensive tariffs. For electricity customers, the ratio is 37 percent and 25 percent loyal customers.
As far as the balance of power on the electricity market is concerned, the Cartel Office does not rate any of the four largest providers as dominant. However, according to the monitoring report, the network agency, the largest customer base, is concentrated in only six percent of the 1364 suppliers. 86 large providers supplied around 71 percent of all customers. At the same time, 84 percent of smaller companies with fewer than 30,000 consumers each shared the remaining 8.1 million delivery points. Among the gas network operators, the large companies control almost half of the connections.
From this strong position, the basic suppliers – often the local municipal utilities – pass on the higher purchase prices as far as possible. The Association of Energy and Water Management (BDEW) complained about “doing business at the expense of customers”. Low-cost providers made “Reibach” in times of low prices and, when prices rose, passed the economic risk on to the basic supplier. But the comparison portal Verivox also expects higher energy prices from basic suppliers in January and February, an average of 20 percent for gas.
This article is at first Capital appeared.