Royal Dutch Shell took a step forward in its aim to become the world’s biggest power company, with an aggressive move into the UK retail market, offering one of the cheapest tariffs available.
Shell Energy, formerly known as First Utility, said on Monday it had a fixed rate power-supply tariff for UK customers of about £970 a year, or about £81 pounds a month until July 2020. The move is part of its rebranding of its UK utility business.
This undercuts former cheapest UK power supplier Bulb Energy, which has a deal available for £981 pounds a year, and is about 18% cheaper than power supplied by Centrica-owned British Gas, according to data from UK power regulator Ofgem.
Shell plans to become the world’s biggest power company within 15 years and is spending as much as $2bn a year on its new-energies division, a move that suggests it sees climate change as a significant threat to the fossil fuel business.
“Shell has been increasingly vociferous about its ambitions in electricity markets, and we see it as a significant competitive/disruptive force over the coming years for traditional utility energy suppliers/retailers,” RBC Capital Markets LLC said in a note Monday.
The bank said Shell’s plan to invest about $1bn-$2bn a year on its new energies division is only 5% of the company’s annual capex and “hence has significant room to grow”. It added that it was “difficult to rule out” Shell buying other UK-based utilities such as the retail unit of SSE or Npower, which are both up for sale.
The move will bring yet more pressure to the UK power market, which has seen swaths of customers abandon the traditional big-six utilities for smaller, cheaper suppliers. Surging wholesale prices for power and gas have driven several companies out of business. In 2018, more businesses folded than in the previous 16 years combined. Brilliant Energy, which has about 17,000 domestic customers, became the 10th firm to cease trading in the past 12 months on March 11.
Britsh Gas, which lost 742,000 customers in 2018, held a 19% share of the UK’s electricity market in the third quarter of 2018, according to Ofgem. Bulb, which has about one-million customers, had a 3% stake in the market.
As well as announcing the rebranding, Shell also said it had switched its existing 700,000 UK customers to power supplied entirely by renewable sources of energy such as wind, solar and biomass.
“Shell recognises the world needs more energy with lower emissions and this will give customers more flexibility, greater control and cleaner energy,” said Mark Gainsborough, executive vice-president of Shell New Energies US.
Newly rebranded Shell Energy will also offer a range of smart home devices, such as thermostats, and discounts on home electric vehicle chargers for its customers.
“We are building on the disruptive nature of First Utility to give customers something better,” Shell Energy Retail CEO Colin Crooks said. “We know that renewable electricity is important to them and we are delivering that, while ensuring good value and rewarding loyalty.”
Alongside First Utility, Shell has made other acquisitions in power including car-charging operator NewMotion and a stake in US solar company Silicon Ranch. It has also announced it’s bidding for Dutch utility Eneco Group, which provides low-carbon power to industrial users and offers apps and other technology to manage electricity consumption. Shell also entered a bid to expand an offshore wind farm in the Netherlands.