Government support packages rescue Ovo Energy from financial turmoil
The UK’s third largest supplier feared for its long-term viability as an energy firm before the Government announced a historic rescue package for households and businesses.
Ovo Energy (Ovo), which is home to 4.5m customers, warned that prior to the £150bn-plus bailout here was “a material uncertainty that may cast significant doubt on the group’s and company’s ability to continue as a going concern”.
It expected to breach banking covenants during 2022 because of soaring prices, according to accounts filed for 2021 and published by Companies House on Sunday.
The company feared a sharp rise in bad debt if households were unable to afford record electricity and gas bills.
Its concerns reflect the continuned volatiltiy and fragility of of the UK’s energy supply industry, which has seen nearly 30 firms cease trading in the past 12 months due to rising costs and poor hedging strategies.
The Government’s announced Energy Price Guarantee freezes household energy bills for two years, containing the price per unit that energy suppliers can charge customers.
It will then make up the difference between that and the actual cost of providing electricity and gas to their customers at current wholesale prices.
The pledge is designed to limit domestic energy bills to an average of £2,500 a year per household, although actual bills will depend on usage.
The company reported a pre-tax profit of £370m for 2021, compared with a loss of £176m a year earlier, the accounts show.
However, the number was boosted by a £372m revaluation of its energy derivative contracts.
These contracts do not reflect the company’s trading.
It explained that its underlying business made a pre-tax loss of £2m, which compares with a loss of £66m during 2020.
A spokesperson for Ovo said: “This is an unprecedented time in the energy sector. 2021 saw rising energy prices creating an extremely challenging environment for many households. At the time of signing our accounts, Russia’s war on Ukraine sent energy prices rising even further and our auditors were right to flag concerns about the impact of these market uncertainties.
Our auditors have made clear that despite the unprecedented challenges we face in the energy markets, they are confident in our ability to operate. We have not breached any covenants and we do not expect to breach any covenants in the next 12 months.”