Flowgroup is to sell energy supply business Flow Energy to Co-Operative Energy for £9.25 million, saying planned price caps would make it less likely customers would switch supplier.
In November the company decided to maintain customer levels below 250,000 so it would not incur costs for social and environmental programmes.
Flowgroup said the supplier was trading “in line with the Board’s expectations”. However, it says that “the headwinds facing challenger suppliers, in particular the impact of the government’s price cap and the significant number of new entrants to the market pursuing aggressive pricing strategies, have continued to strengthen”. It said ‘big six’ companies were expected to lower their standard variable tariffs in response to price caps. “This would lead to an erosion of the differential between the prices challenger suppliers are able to offer and the tariffs being offered by the big six,” so customers would be less likely to switch.
It also said the recent cold weather had been “beneficial to earnings given the group’s hedging strategy,” but had increased peak funding requirements. Equity fundraising was “not feasible”, the company heard.
“It has become clear that in order for the business to continue to operate in the near and medium term, it would need to raise substantial additional capital. Palm and Lombard Odier have separately indicated to the Board that they are not in a position to provide additional funding to the Group and so are supportive of a sale of Flow Energy. The Board has also been advised that an equity fundraising would not be feasible in the current circumstances.
The sale is subject to agreement of a General Meeting in late April. It also requires completion of a revised supply agreement between Co-Operative Energy and Shell that adds Flow Energy customers to those of Co-Operative Energy. Shell provides energy trading services and it acquired a domestic energy supplier, First Utility, for which it had been providing such services, at the end of 2017.
Flowgroup has also agreed to sell its microCHP boiler technology and intellectual property to Canada-based iGEN Technologies for £14,000 in cash, with potential royalty payments of up to £789,000 if iGEN is able to commercialise the technology.