The viability of the UK’s assetless electricity retailers

From the outset of deregulation and privatisation of UK electricity markets, the desired extent of vertical integration has been debated. Concerns over the dominance of the “Big Six” majors and whether consumers were receiving a fair deal, led the new Government of 2010 to promote the entry of new retail supply firms without generation assets. Increasing consumer choice and facilitating supplier switching were seen as counter-weights to the dominance of the vertically integrated majors. Through various policies favouring new, assetless suppliers, the domestic retail electricity market in the UK has become less concentrated offering more choice to consumers. But the process of reducing market concentration has had setbacks: many new retail suppliers went bankrupt and service quality has been mixed. To address possible short-comings, the Regulator in mid-2019 introduced stricter requirements for a retail supply license but are they sufficient? Combining theory with empirical analysis, it is argued that enhanced requirements are unlikely to be sufficient to ensure the success of these new firms because assetless retailers face competitive disadvantages under the current market structure. Before debating the role and benefits of such firms, their economic viability should be assessed