Growing doubts over a rescue deal for Bulb Energy have raised fears that the UK is on the brink of its biggest supplier collapse yet, even as the regulator promises “bold action” to protect millions of households from the deepening energy crisis.
Bulb, the UK’s seventh largest energy supplier, is locked in talks with multiple companies to secure a bailout so it can continue serving its 1.7 million household customers amid record wholesale prices for gas and electricity this winter.
But sources have told the Guardian that the cost of rescuing Bulb, which is understood to be carrying between £600m and £1bn of debt, could be too steep for most companies to shoulder without government help, meaning the number of households that have been forced to find a new energy supplier since the start of September could almost double from its current level of about 2.1 million.
Previously when energy firms have exited the market, their existing customers have been allocated to a rival under the government’s supplier of last resort scheme.
However, a collapse as large as Bulb would probably require the regulator to use a special administrator to keep the company running over winter before prices normalise and potential buyers come forward to snap up the supplier, one source said.
Other sources confirmed reports that Ovo Energy, Octopus Energy and Shell Energy have shown an interest in buying Bulb. Centrica is also understood to be interested in Bulb and may opt to preserve the brand and business as a sister company to British Gas, which it owns.
A Bulb spokesperson said the company was in discussions “with multiple parties to secure additional funding” and the talks continued to make good progress.
In the past two months 13 energy suppliers have gone bust because they were unable to afford rocketing energy market costs, which have outpaced the rise of the regulator’s cap on standard energy bills. Three others collapsed earlier in the year.
In an open letter to the industry on Friday, the regulator Ofgem promised to begin a consultation on how the energy price cap is calculated as soon as next month to make sure it allows suppliers to recover their costs.
What is the UK energy price cap and how does it work?
How does the energy price cap work?
The cap, one of the biggest shake-ups of the energy market since privatisation, came into effect on 1 January 2019 for 11m households on default tariffs, known as standard variable tariffs (SVTs). The government told the energy regulator, Ofgem, to set the cap because ministers argued people on SVTs were being ripped off by big energy firms capitalising on consumer loyalty. The limit is not an absolute one but the maximum suppliers can charge per unit of energy and for a standing charge. There is a separate cap for 4m homes on prepayment meters.
So why are prices moving higher?
In short: if energy market prices climb higher, the cap must move higher, too. The cap is designed to reflect the costs energy suppliers face, the largest of which is sourcing gas and electricity from the wholesale markets. In recent months energy markets have reached historic highs because of tight global gas supplies, causing one of the steepest energy price increases on record. Market prices have continued to climb since the new cap was announced, meaning another rise is likely in April once the regulator has revised its cost assessments.
Is there any way to avoid the increase?
In the past, households could save hundreds of pounds a year by spending a few minutes on one of the many comparison sites, or by signing up to an auto-switching service, and moving to a cheaper tariff, either with their existing supplier or a rival one. But the recent market surge means even fixed tariffs, which are not covered by the cap, are more expensive than the energy price cap itself. The best bet to keep bills in check is to use less energy: if you can afford to invest in insulation this can make a major difference to how much energy you need. Lowering the thermostat by a couple of degrees may also be an option for some.
When will bills begin to fall again?
It is too soon to say. Energy market experts believe gas and electricity wholesale prices will remain high through the winter and into 2022 because energy demand is recovering rapidly after the worst of the Covid-19 crisis. Some believe households may face rising energy bills for another 18 months. In addition to market prices, the regulator includes the cost of using energy networks and paying for government policies – which are also expected to keep rising.
Was this helpful?Thank you for your feedback.
Ofgem did not suggest any specific changes but the industry is expected to take the opportunity to call for the price cap, which changes only twice a year, to be more responsive to swings in the market by changing as often as once every quarter.
“These are challenging times, requiring bold action,” Jonathan Brearley, the regulator’s chief executive, wrote.
This would be the first major change to the price cap since it was introduced in early 2019 to protect households from unfair energy bills by imposing a maximum based on the costs of buying and supplying gas and electricity.
However, any shake-up would come too late for many struggling energy suppliers that are expected to go bust this winter. The regulator plans to consult on changes in November and expects to bring them in as soon as February before the next energy price rise predicted for April.
A spokesperson for Ofgem said that in the event of further suppliers going bust it and government had “robust processes in place” to ensure customers’ electricity and gas supply continues and that their credit balances are protected.
Ofgem is also promising to begin “raising the bar” on its standards for energy supplier finances to ensure they offer “a sustainable business model” that minimises risks to consumers.
The regulator also plans to underline its expectations on how suppliers must help households that are struggling to pay their bills by offering debt payment plans or other financial support “to their most vulnerable consumers”.
Ofgem named and shamed a string of seven suppliers on Friday that are likely to miss a late payment deadline for a total of £17.9m in renewable energy subsidies collected from their customers’ energy bills by 31 October.
The regulator has ordered Ampower, Whoop Energy, Delta Gas and Power, Entice Energy, MA Energy, Neon Reef and Together Energy to meet the deadline or they risk losing their supplier licences. Typically, suppliers that struggle to meet their financial obligations often run a higher risk of going bust.
Brearley said the “unprecedented and unexpected rise in gas and electricity prices over recent months has put energy markets under severe strain”.
Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
Up to 15 million households faced one of the steepest bill increases on record this month after Ofgem lifted the cap on standard tariffs by about 12.5%.
Fuel poverty charities have warned that the altering the price cap to react more often through the year would create a “desperate situation for consumers” if “unmanageable price increases” emerged every quarter.
Peter Smith, a director at the fuel poverty charity National Energy Action, said: “Ofgem need to remember millions of energy consumers will have faced a very bleak winter and the prospect of further, more regular rises will be unthinkable.”