ESB jettisons troubled NI business while pumping millions into loss-making British unit

Electric Ireland, the Republic’s largest energy supplier, is pulling the plug on its troubled Northern Ireland retail arm.

In a short statement issued earlier this month, the company said it had completed a strategic review of its residential business in the North. “As a result of this review, we will be focusing exclusively on the business market and, over time, our intention is to no longer serve the residential market,” it said.

The slightly back-to-front announcement comes in wake of several bust-ups with the North’s energy regulator, a significant decline in its customer base and presumably mounting losses (parent company ESB doesn’t break out the figures).

Last year the Northern Ireland Utility Regulator launched a formal investigation into Electric Ireland for potential breaches of its licence after a technical fault left many of its keypad customers (those who use prepay meters) without power. The company is also in the line of fire over its handling of customer complaints and customer data.

Electric Ireland entered the residential supply market in the North in 2015 and at one point had more than 90,000 customers but this has dwindled to 53,000, equating to 6 per cent of the North’s electricity market.

The North’s market is said to be difficult for new entrants on account of the low level of switching, with market incumbent Power NI still maintaining a near 60 per cent share, which is high in the era of liberalised energy markets.

ESB could have used its huge profits from generation – it reported after-tax profits of €868 million for 2023 – to bail out Electric Ireland’s ailing Northern Ireland business, something it is forbidden from doing in the Republic.

Remember, the group used to be a vertically integrated monopoly utility under the one brand, ESB. Now it is functionally separated into three basic divisions: ESB Generation, ESB Networks and the group’s retail arm, Electric Ireland, while the national grid is operated independently by EirGrid. From a grid perspective, Ireland operates as a single all-island energy market but the retail market still has two jurisdictions – North and South – with two regulators.

EU competition law forbids former monopolies from using profits from one division, in this case ESB Generation, to subsidise another part of the business, in this case Electric Ireland. But this doesn’t apply in Northern Ireland or in Britain as the ESB wasn’t a former monopoly in those jurisdictions.

And while it has decided to stop subsidising its loss-making Northern Ireland retail unit (mindful it will continue to service business customers), it has pushed tens of millions into its loss-making British unit, So Energy.

The ESB acquired So Energy in 2021 on the eve of the biggest wholesale energy price shock in modern times, which was unfortunate timing. And because of the UK’s energy price cap, the unit has racked up huge losses since the acquisition.

It was responsible for the bulk of a €109 million loss posted by the ESB’s customer solutions division in 2022. This was reduced to just €12 million last year on the back of what the ESB described as an “improved performance in So Energy”.

ESB’s move to jettison its Northern Ireland retail arm while keeping faith with the British one is probably just hard-nosed business decision-making. It is perhaps based on So Energy’s potential to grow and scale up in the more dynamic British energy market.

So Energy is described as a challenger brand in Britain. It has about 300,000 individual customers but its growth prospects have strengthened considerably with more than 30 potential rivals exiting the market on the back of the turmoil of recent years.

First to go were the pandemic-exposed firms with insufficient hedging strategies. This was then compounded by the spike in wholesale costs following Russia’s invasion of Ukraine. Unable to hike retail prices beyond a certain point because of the country’s price cap, many UK players were forced out of business.

[ Energy bills could fall further this year, says ESB ]

At the height of the crisis, So Energy appointed financial advisers in a bid to secure £50 million of emergency funding but this plan was shelved when wholesale prices stabilised.

“Because of the change in market circumstances and the continued support from our majority shareholder [ESB] … we are no longer exploring additional funding options,” So Energy co-founder Simon Oscroft said at the time.

The ESB’s British unit currently ranks outside the top six in terms of market share (behind British Gas, E.ON, SSE, EDF, Npower and Scottish Power) but it is growing. “ESB, as majority shareholder, remains committed to its investment in the GB retail market through So Energy,” the company said when contacted.

After a tumultuous two years, energy markets have stabilised for now even if domestic gas and electricity prices for consumers are unlikely to return to 2021 levels.

Nonetheless, the ESB has decided enough is enough for its ailing Northern Ireland retail operation.