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Most UK small energy suppliers could be left to collapse this winter

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The majority of the UK’s small energy suppliers could be left to collapse this winter, the Guardian understands, as the government’s crisis talks focus on protecting households rather than bailing out struggling companies.

The business secretary, Kwasi Kwarteng, was due to meet the industry regulator on Sunday to thrash out possible options to intervene in the energy market after a recent run of supplier collapses owing to a record rise in global gas and electricity prices.

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Five small operators have gone bust in the last five weeks, leaving more than half a million customers in need of a new supplier, and industry sources expect another four may fold before the end of the month, leaving 1 million customers stranded.

The Guardian understands the government would rather put in place arrangements to protect the millions of homes that may be left without a supplier this winter than prop up poorly financed companies that are likely to fail.

One senior industry source said the government was “not interested in bailing out badly run companies” and may leave the sector to experience a “natural response” to the unfolding crisis.

By the end of winter the industry may shrink to as few as 10 energy suppliers, according to analysis from experts at Baringa Partners for the Times, from about 70 suppliers at the start of the year.

The all-time gas price highs have also forced a slowdown at UK steelmakers and industrial chemical factories, posing a threat to the UK’s food industry which relies on the CO2 they produce for use in fizzy drinks, packaging and to stun animals for slaughter.

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Kwarteng tweeted that he would meet the industry regulator, Ofgem, on Sunday to discuss the situation before holding a roundtable meeting with industry leaders on Monday “to plan a way forward”.

There were a raft of one-on-one crisis talks with the leaders of the UK’s biggest energy companies over the weekend, which were likened by one senior industry source to the emergency meetings held with companies at the start of the Covid-19 pandemic.

The government is expected to consider measures that would support those energy suppliers that can take on the large numbers of customers “left vulnerable” after a company collapse, to ensure they are protected through the winter, the source said.

Another industry leader told the Guardian there had been “sensible conversations about how to manage the exit of less well-run companies”.

The government’s approach, which is still undecided, could lead to a dramatic shrinking of the energy supply market, which has seen an influx of small suppliers in recent years. Many do not have the financial heft to weather market volatility and resort to poor customer service to cut costs.

The households left stranded when their energy supplier goes bust are typically placed into a scheme run by Ofgem, which assigns a new supplier to take on the displaced customers.

The huge number of customers who are expected to be left without a supplier this winter could require extra support for the scheme from the government and the regulator to cope with the steep rise in demand for new “suppliers of last resort”.

Kwarteng said on Saturday that the government did “not expect supply disruptions this winter”.

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A government spokesperson said on Sunday: “We are monitoring this situation extremely closely. The business secretary is in close contact with the energy industry on the impact of high global gas prices, having met senior figures today and yesterday, and will speak further on these issues at an industry roundtable planned for tomorrow.”