Ovo Energy with millions of customers is under threat: what’s next.

Issues with the financial stability of Ovo Energy

According to The Sun: The energy company Ovo, which serves four million customers, has expressed concerns about its financial stability. It has been unable to meet new requirements set by the regulator Ofgem.

The changes introduced in April aim to ensure that energy suppliers are prepared for future crises. Currently, Ovo does not meet those criteria.

Octopus Energy, the largest energy supplier in the UK, also does not meet these standards alongside another unnamed company.

Ovo's Chief Financial Officer, James Davies, noted in financial reports:

“The company aims to improve its capital position and is working closely with Ofgem to develop a capitalization plan to meet the minimum capital requirements.”

However, the company points to

“uncertainty regarding the timing and scope of the implementation of the capitalization plan due to certain elements beyond the group’s control”

This could create

“significant uncertainty that raises substantial doubt about the group's and company's ability to continue as a going concern”

New requirements emerged after the energy crisis of 2021-2022, when many energy companies went bankrupt.

Suppliers have been set a target capital buffer of £115 per dual-fuel customer to strengthen their resilience to future unforeseen circumstances.

Chris O'Shea, chief executive of Centrica, the parent company of British Gas, called in July for suppliers who do not meet the requirements to be banned from taking on new customers and accused Ofgem of failing to enforce its own standards.

Ofgem, in turn, confirmed that companies that have developed a plan to achieve resilience requirements are not in violation of rules and thus are not subject to sanctions such as bans on taking in new customers.

A representative of Ovo emphasized:

“Ovo is a fully funded company, backed by long-standing shareholders and stable resources such as Shell.”

They also noted:

“The capital adequacy requirements are new, and all suppliers are working with them for the first time. It does not reflect our ability to serve our customers or our performance this year, and we will continue to focus on implementing innovations and long-term investments in the sector”

Annual reports show that the company suffered losses of £167 million in 2024, contrasting with a profit of £1.1 billion in 2023.

From its statutory reports, the losses were £135 million, while in 2023 profits were £817 million.

Core earnings decreased to £42 million from £225 million in 2023, when profits surged after Ofgem allowed suppliers to recoup costs incurred during the energy crisis.

The number of the company’s customers remained stable at four million last year.

The situation regarding Ovo's financial stability is a signal to the market about the need to enhance regulatory mechanisms in the energy sector. This may affect consumer trust in the company and overall the state of the industry, which is undergoing significant transformations following the energy crisis. Thus, it will be important to monitor the development of this situation in the coming months.