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Bailout process for collapsed Bulb Energy will rely on public funds

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Bulb Energy has gone bust and will be placed into an untested bailout process that will rely on public money to manage the fallout of the UK’s biggest energy supplier collapse yet.

The company will be handed to a “special administrator” that will have access to government funds to keep it running to supply gas and electricity to its 1.7 million household customers.

The cost to taxpayers is expected to soar through the winter, and could also be shared by households in the form of higher home energy bills in the future if the government cannot recover the costs from a new company through a rescue deal.

Bulb is by far the largest energy supplier to go bust after a string of more than 20 company collapses since September. The total cost of the energy market crunch could run to around £2bn this winter, according to Investec analyst Martin Young. But the final tally remains unknown as “Bulb’s failure takes us into uncharted waters”, he said.

Bulb told its staff that it had made the “difficult decision” to support a special administration. It added that there would be “no interruption of service or supply” and urged customers not to worry “as your energy supply is secure and all credit balances are protected”.

The company’s collapse has been long expected by industry rivals after it struggled to find new investment, or a willing buyer, before the UK’s looming winter energy crisis.

“It has been like watching a zombie movie – you know they’re walking dead but you couldn’t be sure when they’d stop moving,” one senior industry source said. “They’ve long been dicing with death but the recent events in the energy market have been a catalyst for what would have happened anyway.”

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Bulb blamed the surge in energy market prices ignited by the global gas crisis for scuppering its plans to raise funds to fuel its ongoing growth, which included new businesses in France, Spain and Texas.

“When we started exploring fundraising options, we were delighted to receive lots of interest from investors to fund our business plans and future growth,” the company said in a blogpost on Monday. “However, the rising energy crisis in the UK and around the world has concerned investors who can’t go ahead while wholesale prices are so high.”

The company also took aim at the UK’s rising energy price cap, which was designed to set a fair energy price for about 15m homes using standard energy tariffs but has not kept pace with the rocketing increases in the wholesale energy markets.

The record increase in energy bills has caused 21 suppliers to collapse since the start of September, leaving the regulator, Ofgem, to find new suppliers to take on more than 2 million customers. The collapse of Bulb brings the number of households affected by a failed energy supplier to more than 3.7m.

The size of Bulb’s customer base means Ofgem is unable to find a supplier that would be willing or able to take on all of Bulb’s customers via its usual safety net process. Instead, the regulator will need to use untested legislation, in place since 2011, to put the company into special administration while a complex plan for its future is mapped out.

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The prime minister’s spokesperson said: “Bulb is around three times larger than the largest company that has become insolvent in recent weeks. That’s why we’re taking the special administration regime approach.

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“We will seek to appoint the administrators who will effectively run it and provide energy through that system, but at this stage it’s too early to say what the future of that provider is going forward.”

Ofgem plans to apply to court to appoint the administrator once it has had approval from the business secretary, Kwasi Kwarteng.

“Customers will see no disruption to their supply and their account and tariff will continue as normal,” the regulator said. “Bulb staff will still be available to answer calls and queries.”

The process is similar to other bailout schemes used to keep critical infrastructure companies, including British Steel and railways, running with the help of government funds.

Ofgem is expected to work alongside the Department for Business, Energy and Industrial Strategy and the Treasury to keep the company running through the winter and until a fate for its customers is decided.

Some energy industry sources believe the company may be left in “special administration limbo” for up to a year, at a significant cost to the government, because it would be easier to find new private-sector investment or a willing buyer when energy prices have started to return to normal.

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Gillian Cooper, the head of energy policy at Citizens Advice, said Bulb customers would be protected by the special administration process and “shouldn’t see much change to their service for now”.

She added: “But when the country’s seventh largest supplier fails, serious questions must be asked about the state of the market and how it’s regulated. It’s clear reforms are needed to prevent consumers and taxpayers from paying the price for supplier failures in future.”

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The regulator has conceded in recent weeks that “robust action” was required to overhaul the energy market due to the ongoing supply market crisis.

An Ofgem spokesperson said: “Customers of Bulb do not need to worry – Bulb will continue to operate as normal.”