The number of demand-side response aggregators active in the UK market will reduce significantly over the next 18 months, according to market participants.
Restore UK lead Louis Burford believes only a third of operators will be in business. Endeco CEO Michael Phelan thinks around half of current aggregators are “sales engines” that may run out of steam.
“I believe there will be a consolidation over the next 12-18 months. We will see the stronger companies survive and others move away and look at other areas,” Burford told The Energyst.
“I think there will be no more than a handful of competent aggregators, with technology that works, that are still in the market in the next two years.”
Aggregators heavily reliant on capacity market revenues could now be feeling pain from unpredictable revenue streams, Burford and Phelan agree.
“We have seen a huge amount of volatility in the last couple of auctions, one clearing just under £7k/MW the other at £45k/MW. That is a huge spectrum,” said Burford. “If you are putting your eggs into those baskets, it is very difficult to build a business plan and forecast when you have such uncertainty in your pricing model.”
Endeco’s Phelan says £7k/MW is “almost at don’t care level” as far as end users are concerned.
“It is not possible for an aggregator such as us to run a business on that level of income per megawatt and also not of interest to customers at that level of income,” he said. “So traditional aggregators in UK and Ireland that are mainly capacity-based, then I guess for them the market is probably dead.”
Meanwhile, energy suppliers, as well as distribution networks, are now starting to go after the same customers, increasing competitive pressure on aggregators.
Phelan and Burford think that development, as well as commoditisation of revenues from system operator schemes, might also contribute to consolidation, potentially through acquisition.
[Suppliers] are definitely going to be involved in the market and I think if you are a marketing company just selling capacity, then they will overtake you fairly soon,” said Phelan.
“If you are providing all the layered services that are as much about [your] technology as about, if you like, just a selling engine of a company, then I think it might be a slightly different proposition. I think [suppliers] might need the aggregator or the people doing that work to coexist with them to deliver the market.”
Burford agrees suppliers “will struggle to build decent technology platforms” and may therefore need to partner with aggregators – at least those left standing.
Of around 15 aggregators currently in business, Burford sees that “dropping to a third of that figure” within two years.
“Some are swallowing money, they are marketing shells that are putting a huge amount of finance into marketing,” he said. ”But they are not turning that into actual value for end consumers.”