Shell is the latest to leave the domestic electricity market and blames the volatility of the energy sector as well as the lack of consistency by the government in dealing with the industry.
The oil giant announced that, after a five-month review of its strategic direction, it will be selling off its retail home energy business — only five years after entering the market. Ovo and Octopus have been identified as potential buyers.
Shell Energy Retail is the largest energy retailer in the world with 1.34 million households, which represents more than 4% of market share. Shell Energy Retail has also acquired 500,000 household broadband customers, as a result of the 2021 purchase of a Post Office-owned business.
Around 2,000 people are employed in the operation, including 1,400 Shell employees in the UK as well as external contractors. It was not clear what would happen to them in the event of an acquisition.
Shell’s spokesman stated that it will no longer supply domestically due to “market conditions”. Prices of energy have increased on the back of fears of shortages after the Russia-Ukraine war. The UK also needs a “stable fiscal regime and policy framework”.
Shell customers who do not want to continue with the new business owner may be required to pay an exit penalty. It is common for new owners to allow customers to switch to a different supplier without paying exit fees. Shell is believed to have few long-term customers.
The disruptors Ovo and Octopus, which have overtaken and challenged the market positions held by EDF E.On Scottish Power and others for many years.
Ovo became one of the biggest players after it bought the SSE home energy division, which was part of the old six big suppliers that were left in the wake of liberalisation. Ovo is said to be considering an indicative bid for Shell’s business. If it succeeds, Octopus would be leapfrogged and British Gas would become the UK’s second largest provider of home energy.
Octopus grew at the beginning of the year, after it acquired the struggling business of Bulb. It also bought smaller operators, including the energy divisions of Marks & Spencer, The Co-op, and other retailers.
Shell entered the domestic energy market in 2018, when it acquired First Utility. First Utility was established in 2008 and had a trading agreement with Shell. Shell Energy, rebranded as Shell Energy, has been busy acquiring customers from small suppliers who have failed. It has incurred losses in excess of £300 million before tax.
It blamed the 2021 loss it suffered on “market conditions”, which included the unprecedented rise in energy costs that autumn. “Increased costs due to supplier failures on the market, and inability of suppliers to pass higher energy costs on” after the introduction of the price cap for standard tariffs.
Shell’s household products businesses in Germany and the Netherlands will also be sold.
Shell stated in a press release that “a sales process has already been initiated with the intention of reaching an agreement with a possible buyer in the next few months.”
“Nothing changes for our customers throughout the sales process.” We are committed to ensuring that a seamless transfer is made to a buyer who can deliver on its obligations. This includes our intention to maximize employment.
Shell’s business to small and medium-sized companies is not included in the sale.