Gas supply is an area which can be inter-preted as being opaque, a „closed” sector. Although the number of distributors (which also povide supply sevices) in this field is much higher than in the electricity supply sector, very few suppliers have the capacity or liberty to work outside the areas leased by them. Among the reasons behind this situation we can include chronic lack of competition in the production segment (the two major producers treat each customer arbitrarily), lack of competition between suppliers (major suppliers have access to a „special” category of prices on the ground of volumes required), a chronic lack of qualified personnel and lack of consumer information. Additionally, there are also:
– the lack of transparency in terms of tariffs/ legal obligations/ exceptional situations. In this field, legislation is often inadequate a insufficiently detailed. Therefore, there are many cicumstances in which a new supplier can block, having no proper legal framework for managing certain matters. They are settled amicably, but you have to be familiarized with them to be able to negotiate and manage them from equal footing with counterparties;
– the lack of predictability and transparency in setting prices. Lack of an exchange mechanism or reporting of the competent authority leads to a situation difficult to understand by anyone outside the field. Prices are not even known for the following month. In order to prepare an offer, you need a reference or a market level, because only calculated risks can be undertaken;
– the reluctant and sometimes unprofessional behavior of renowned suppliers.
Often, as a new supplier, in the attempt to bring a consumer in your portfolio, you will hit arguments or bad intentions of its current supplier. Such approaches cause a lot of damage to the renowned suppliers; many consumers may feel threatened and will want to change their supplier for exactly these reasons. Others notice that nothing happens of those promised by the current supplier, might feel cheated and will make the decision to change.
Until the Time of Stabilizing a Portfolio, One Can Assume a Net Loss
The decision to develop this niche must be based at least on the existence of a strong group of companies already in this field in another country or activating in the electricity segment The decision to join the gas market is a risky decision, because any business plan must be started from the idea of assuming losses until the stabilization of a critical mass of customers, which can cover the costs of a gas department. Until the time of stabilizing a portfolio, one can assume a net loss, which many cannot absorb. Moreover, a new player in the field has problems when we talk about its credit-worthiness to other market participants. A second condition necessary, but not enough, consists of existence of qualified staff, familiar with all the existing problems.
Besides, there are also circumstantial elements that may facilitate the emergence of a new supplier, as well as liberalization of the non-household market. Then, the „habit” of traditional suppliers; without real competition, they reached supply margins increasingly high and services increasingly questionable in terms of quality These high operating margins provide suppliers with the opportunity to come up with competitive offers. Finally, I also mention the apparition of new producers, which are becoming relevant through monthly produced volumes. They want to sell their production every month, so they will have to enter into compettion with the traditional producers. On the other hand, relationship with renowned suppliers might not always be the best; the latter having the capacity to absorb the entire production, they will try to take advantage of new producers. The solution for these producers is to support the new suppliers.
Initial Funding Allows Business Development for a Year
Premier Energy Trading started as a risky project for all those involved. Some risked capital, others risked comfortable and safe positions in terms of career. The business plan started from the assumption that we can attract some small and medium-sized consumers per month – B4 or smaller consumers. Large consumers (from B5/A2 up) and trading were considered too unpredictable to be considered initially.
EUR 500,000 was the budget considered comprehensive for starting and funding the business in the first year. The budget assumed two employees, purchasing the mandatory fixed assets for starting the activity (office/ PCs/ telephones/ car for travels), as well as a potential operating loss in the first year of activity. Administrative costs are similar to any retail activity (ISO certifications, building company’s image through a website, presentation materials and specific procedures). They are costs that must be covered immediately, so the funding need for them is quite high, with slow amortization.
The base of consumers had to be attracted from the knowledge and partner portfolios of employees, which already had relations with certain consumers/ suppliers in the field and were able to use their own image to be able to boost trade relations. The personal image and confidence you send to potential partners become key-elements, which can help a lot to „unfreeze” contractual relations.
Company development was significantly influenced as of January 1st 2015, when many consumers had to choose a supplier. Capitalizing on such moments may bring positive results, exceeding the initial predictions. The field is relatively difficult and risky, but has a lot of potential and promises in the appropriate conditions a return on investment in time and money much higher than in other fields. Additionally, there is the need and possibility of development of new production and supply companies, which would bring a breath of fresh air in the field and force the change from a closed market, dominated by monopolies, to a modern market, with added value for both users and service providers.
The article has been featured in Energynomics magazine, Summer Edition 2015.