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Ofgem evidence reveals potential £2.4bn fallout from energy firm collapses

23 March 2022

Energy providers could receive up to £2.4 billion for taking on the customers of firms that have collapsed since 2021. 

The figure is revealed in written evidence given to the Business, Energy and Industrial Strategy Committee by industry regulator Ofgem, which the Committee published yesterday (22 March) as part of its inquiry into energy pricing and the future of the energy market

In the evidence it provided, Ofgem says that providers that were chosen to take on the customers of firms that went bust are expected to claim between “approximately £2.2 billion to £2.4 billion” from Ofgem, which will later be recovered from bills charged to all UK consumers. 

The system under which Ofgem transfers customers of collapsed providers over to other firms is called the supplier of last resort (SoLR) regime. 

Ofgem states that about 85% of the overall costs those providers have incurred under the SoLR regime were from having to buy wholesale energy supplies for their new customers. 

More than 30 companies have gone bust since the start of 2021.  

When Bulb Energy collapsed in November, rather than its customers being transferred to another firm under the SoLR regime, the company was instead placed in Special Administration and consultancy firm Teneo was appointed to take over its affairs. 

During the Committee’s evidence session held yesterday (22 March), Gillian Cooper, Head of Energy Policy at Citizens Advice, told members: “We need to move to a world where the costs of failures are not fully borne by energy bill payers. We have estimated that the costs of all these energy supplier failures is going to cost in excess £2.4 billion. That is about £94 per household. And that does not include the cost of the failure of Bulb which is being treated separately under the special administration regime.” 

Last week, the BEIS Committee published a letter from its Chair, Darren Jones MP, to the Business Secretary Kwasi Kwarteng, asking why Teneo had been banned from buying wholesale gas at hedged prices.  

The Chair outlined his concern that this hedging ban will cost the taxpayer at least £1.3bn more than the original £1.7bn estimated cost caused by Bulb’s collapse.

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