Npower a salutary warning to interfering politicians | Business News


The loss of 4,500 jobs at Npower should come as a salutary warning to politicians about the dire consequences of interfering in regulated markets.

For the closure of Npower, which is effectively what this amounts to, is a direct consequence of decisions made by two politicians – Theresa May and Angela Merkel.

Mrs May is culpable because Npower, which was already uprofitable, has been rendered chronically loss-making as a result of the price cap introduced on standard variable tariffs by her government at the beginning of the year.

Npower, as one of the less efficient members of the ‘big six’, was particularly badly hurt

That has shredded profits at all of the so-called big six energy companies – British Gas, SSE, Npower, E.ON, Scottish Power and EDF Energy.

Npower, as one of the less efficient members of the big six, was particularly badly hurt.

It lost €167m (£142.3m) during the first nine months of the year, down from losses of €71m (£60.5m) in the same period last year.

Mrs May was warned about the consequences of introducing a price cap, which was announced in her ill-fated speech to the Conservative Party conference in October 2017; best remembered now for the coughing fit she suffered delivering it.

Comparison websites and switching services said imposing a price cap would stifle competition and drive some energy suppliers out of business.

Iain Conn, chief executive of Centrica, the owner of market leader British Gas, highlighted evidence from around the world that price caps did not work.

Mrs May, though, ploughed on regardless.

She was influenced by the popularity of the policy when Ed Miliband, the former Labour leader, proposed a price cap on energy tariffs ahead of the 2015 general election.

Even before the announcement about the dismantling of Npower, there had already been jobs lost in the sector as a consequence, with British Gas announcing in June this year it was cutting up to 700 management and back office roles.

It specifically blamed these on the price cap.

But Mrs May is not the only politician culpable.

Theresa May and German Chancellor Angela Merkel arrive at the chancellery in Berlin
Npower’s closure is a direct consequence of decisions made by Theresa May and Angela Merkel

Both Npower and E.ON, the business to which Npower’s 3.6 million gas and electricity customers will be transferred, are German-owned.

Yet the German power industry has been in a state of disarray since Mrs Merkel announced a ban on new nuclear power stations and ordered the closure of seven of Germany’s oldest nuclear plants in the wake of the Fukushima disaster in Japan in 2011.

It came just as she had announced another energy policy, the Energiewende, which moved away from old fossil fuel-powered plants and towards renewables.

The subsequent glut in power generation facilities drove down wholesale energy prices and hammered the profits of German energy companies.

The upshot was that, when Mrs Merkel announced her nuclear ban, both E.ON and RWE, Npower’s former owner, were tipped into the red.

Both companies have since reorganised.

File photo dated 11/10/13 of a general view of the e.on energy company logo. Consumers are facing a hike in their gas and electricity bills after one of the big-six energy suppliers, e.on, is set to remove savings for customers who benefit from the dual fuel and paperless billing discounts on some tariffs
The big question is whether the competition authorities will have anything to say about E.ON and Npower coming together

E.ON, for example, spun off its older coal and gas-fired power stations into a separate company called Uniper.

This was the prelude to a much bigger deal, in March last year, in which E.ON and RWE embarked on a complicated €43bn (£36.7bn) asset swap.

EON transferred its renewables arm to RWE which, until then, had been heavily dependent on coal-fired power.

RWE, meanwhile, transferred its energy networks and customer operations to E.ON.

This included Npower – meaning that the business was now under the same roof as both Npower and E.ON’s UK household supply arm.

Some kind of attempt to combine the two was inevitable and especially after SSE, another of the big six, abandoned an attempt last year to merge its household supply business with Npower – a decision that it based squarely on the energy price cap.

SSE, keen to get out of household energy supply since the price cap, has since announced it is selling the business to Ovo Energy.

The big question is whether the competition authorities will have anything to say about E.ON and Npower coming together since it will effectively mean the big six is shrinking to a big five.

In the meantime, many customers who switched away from the big six in disgust at their supposed profiteering, have discovered that the grass does not necessarily grow greener on the other side.

More than a dozen small challengers to the big six have gone bust during the last year as they, too, have struggled to live with the price cap.

The closure of Npower, with the loss of four in five of the company’s 5,000 UK jobs, is clearly awful news for those employees affected.


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