Fourth small energy retailer collapses under weight of soaring wholesale prices

A fourth small energy retailer has collapsed under the weight of the soaring prices on the wholesale electricity market driven by the surge in global fossil fuel prices, amplified by generator failures in the local market.

Power Club, a small retailer that offered its members in Queensland, NSW, the ACT and South Australia direct exposure to the wholesale market – for better or worse – was suspended by the Australian Energy Market Operator on Tuesday.

It became the fourth small energy retailer to collapse, following the failures of Weston Energy, Pooled Energy and the country’s first community-owned retailer, the Byron Bay based Enova Energy.

The persistent high wholesale electricity prices have made it nearly impossible for smaller retailers to operate in the market, even with big investments in hedging, financial instruments designed to protect against the soaring prices.

However, most hedges are designed to protect against occasional rises above $300/MWh, but the average wholesale price in recent months in most states has averaged more than that.

Small retailers are particularly exposed because of the small balance sheets, and because, unlike the big “gentailers” they can’t make profits on the generation side of the market when suffering on the retail side.

Big gen-tailers have also suffered a reduction in profits, mostly because of plant outages and fuel supply problems that have forced them to buy coal or gas on the spot market so they can be burned to make electricity.

The estimated 1,800 customers of Power Club will be reassigned to the relevant “retailers of last resort”, which in this case includes Origin Energy, Energy Australia, and ActewAGL.