Ovo Energy faces uncertain future after missing Ofgem resilience targets

Ovo Energy, the United Kingdom’s fourth-largest energy supplier, has issued a stark warning regarding its future viability following its failure to meet Ofgem’s updated financial resilience requirements. The company, which provides energy to approximately four million households, revealed that while it has agreed a capitalisation plan with the regulator, there remains significant uncertainty over the timing and successful implementation of this plan.

These revelations come in Ovo’s latest accounts filed at Companies House, where the company acknowledged the material risk to its ability to continue as a going concern. Ofgem introduced stricter capital adequacy requirements after recent crises in the energy market, mandating that suppliers hold £115 in adjusted net assets for every dual-fuel customer from the close of March. Despite these regulations, Ovo, along with other major suppliers including Octopus Energy, fell short of the target and has been under pressure to bolster its financial position.

Ovo has turned to advisers from Rothschild to explore fundraising, seeking to secure hundreds of millions of pounds to reinforce its balance sheet. Among recent actions, Ovo bought back its brand from founder Stephen Fitzpatrick and restructured royalties in exchange for equity. The company also repaid £400 million in loans at the start of the year and secured a new £60 million facility from Cheyne Capital Management, with the funds channelled to improve its subsidiary’s capital standing.

The latest figures paint a challenging picture. Ovo’s net loss totalled £135 million last year, a sharp reversal from an £817 million profit the previous year, which had been buoyed by temporary industry-wide regulatory allowances. When adjusting for derivative contract values and non-operational spending, underlying profits similarly dropped from £225 million to £42 million.

Industry rivals have challenged the situation, with calls to restrict non-compliant companies from accepting new customers, while critics suggest that falling short of the targets provides companies such as Ovo with an unfair competitive advantage. Despite these criticisms, Ovo maintains it remains fully funded and is confident in the backing of long-term shareholders, including Mayfair Equity Partners and Mitsubishi.

A spokesperson emphasised that the new capital requirements are novel for all suppliers and insisted that Ovo’s current challenges are not a reflection of its service quality or long-term strategic intent. The company has reiterated its commitment to innovation and continued investment in the energy sector.