The City rejected energy regulator Ofgem’s call for a competition investigation into the industry, sending shares in energy providers lower amid warnings much-needed investment would be deterred.
The investigation is expected to take about two years and could lead to a huge shake-up of the industry, including breaking up the retail and generation units of the Big Six providers into completely separate companies. Opponents of the review argue that the uncertainty created by the process will put investors off backing new power plants.
Shares in SSE, one of the two Big Six energy providers listed in the UK, tumbled by 2.5% to 1,481.16p today while the other — British Gas owner Centrica — fell nearly 1 per cent to 320.8p.
“Ofgem says referral is to ‘clear the air’. This will cost tens of millions of pounds and freeze investment adding to security of supply risks,” said Liberum Capital analyst Peter Atherton.
He also accused the regulator of being swayed by politicians, who have placed energy prices centre stage in recent months.
“Ofgem has given up trying to be a politically independent regulator. Very damaging to the reputation of UK regulation,” he said in a tweet.
Whitman Howard analyst Angelos Anastasiou added: “ When the investigation is finally concluded, there will doubtless be some new recommendations. However, we continue to believe the unpalatable price increases that we have seen in recent years are unfortunately ultimately justified, as they largely reflect external market pressures.”
But consumer groups welcomed the move. “Expect to see an increasing number of companies announce price freezes,” said James Padmore, head of energy at comparethemarket.com.