This response is submitted to the inquiry on energy pricing and the future of the energy market on behalf of Bulb management and not the company and its administrators.
Bulb was founded in 2015 because we thought energy customers deserved a better deal. At the time, people were being overcharged, with poor customer service and a market dominated by the old ‘big six’. We believed strongly that we should do things differently, and that by building a talented team and creating our own technology we could make energy simpler, cheaper and greener. Bulb grew to 6% of the UK market with around 1.6m customers, expanded to France, Spain and Texas, and created more than 1,000 green jobs, including apprenticeships.
UK energy suppliers have an integral role to play in helping the UK to fight the climate crisis, lowering customer’s energy bills and carbon emissions. At Bulb we’ve always been driven by the opportunity to do this, always putting our customers first. We consistently provided excellent customer service, built top-rated technology for our members and prioritised vulnerable customers.
On 24 November 2021, amid record wholesale energy prices, Bulb entered special administration. We did everything we could to avoid this outcome and protect the taxpayer, and we’re incredibly disappointed. We think now’s the time for reforms that improve the market for consumers, protect the most vulnerable in society, and help them transition to a green economy. We need a dynamic, responsive energy system so that suppliers can help people benefit from cheaper, greener energy; lowering bills and carbon emissions. Competition reform must overcome the loyalty tax and make sure customers are treated fairly.
We welcome the committee’s investigation and hope that our experiences as a challenger energy supplier, and our entry into special administration, ultimately help to improve the UK energy market, which is crucial to achieving the UK’s net zero ambitions.
In this response we outline:
While high and volatile global gas prices have caused the current crisis, regulation has made it harder for suppliers to attract investment. Almost every energy supplier in the UK has been loss-making in recent years. Suppliers are part of a complex energy system, but currently they take on the majority of the risk in the market, while being the only players subject to a price cap. This means customers ultimately bear the brunt. It would be better and fairer if this risk was shared between market participants, including networks.
The price cap, which is a good thing, is designed to protect consumers and has made all energy suppliers more efficient. To price exactly in line with the energy price cap, suppliers need a long-term hedging policy, but the observation period which it is based on means that the price consumers pay does not reflect the actual price of energy. It also means there’s a delay in passing on savings when wholesale costs go down. This is the opposite of the dynamic, responsive energy system we’ll need to reach net zero, where consumers use technology to use energy when it’s cheapest, reducing pressure on the energy system.
Before the gas crisis, around 12 million people in the UK were affected by the ‘loyalty tax’, which was as high as £300 per year. It disproportionately affected elderly and vulnerable customers, who were more likely to be on standard variable tariffs, and unlikely to switch. ‘Tease and squeeze’ tactics were used across the industry to lure in new customers on cheap deals, with the hope they wouldn’t notice when they rolled onto an expensive standard variable tariff after 12 months.
The way the energy retail market is structured means that consumers are forced to shop around for the best deal every year. This is exacerbated by price comparison websites, who earn commission when customers switch but have been subject to almost no regulation. Some suppliers choose to offer exclusive tariffs to some price comparison websites, sometimes not even available on the supplier’s own website, which disadvantages less engaged households even further and drives down prices. This means that suppliers focus too heavily on price, rather than technology, or customer service. It has encouraged companies entering the market to follow a ‘tease and squeeze’ model, which perpetuated unsustainable prices.
Our mission has been to lower bills and carbon emissions for our members. We offer a simple, variable tariff that reflects the true cost of energy. We never tease and squeeze. We hold off from passing on cost increases for as long as we can, and we pass on savings when the price of energy drops.
Our hedging policy was designed to allow us to offer fair prices to our customers, make sure we passed on cost savings where we could, and grow within the UK energy retail sector. In normal times, there’s a contradiction in the market in that suppliers are encouraged to compete on price, which requires shorter hedging periods to make the most of wholesale price dips, but also to have long-term hedging strategies of over a year in place to protect against wholesale spikes.
Our policy was to hedge six months in advance, and we aimed to balance upward and downward movements in wholesale energy. We also held a minimum cash position and kept our costs low. As we grew, and in light of wholesale prices becoming volatile as the world began to recover from the coronavirus pandemic, we attempted to take a longer-term approach with our hedging strategy. We tried to extend our hedging strategy in the year leading up to Bulb entering special administration. But this wasn’t possible, as we were unable to post the amounts of collateral needed to secure a long-term credit line, which can run to hundreds of millions of pounds. With hindsight, while our policy allowed us to price fairly but not unsustainably low, it was unable to manage the extreme situation we’re seeing in the energy market, as well as the price cap observation period being so far below the true cost of energy.
Bulb’s long-term strategy has been based on the huge role for energy suppliers in the energy transition. As we transition towards a low-carbon economy, homes will become energy systems with a two-way connection to the grid. We strongly believe there’s a place for energy suppliers without generation assets to play a key role in the industry. Energy suppliers will be the interface between consumers and the huge energy transition needed to address the climate crisis. Suppliers will help more people to generate energy at home, for example through solar panels, connected to a home battery, or their car battery. They can store and use energy when demand is high, and even export energy to the grid and get paid for it.
For example, Bulb’s EV tariff allows our members to shift their usage to times of low demand, meaning it has a lower price and supports the decarbonisation of the electricity system. We also support our members who generate solar energy on their properties through our Feed-in Tariff and Export payment schemes. Going one step further, in future we can help customers unlock the potential of their EVs and batteries, for example by encouraging them to offer them up to be used flexibly - allowing suppliers to control when they charge and store electricity to manage demand on the grid.
New technology like virtual power plants - software which aggregates residential batteries to respond to market signals - gives this technology a secondary function and reduces the cost of ownership. A residential virtual power plant will deliver energy where it’s being used by households, removing the need for expensive network upgrades.
While building and researching this new technology, we’ve focussed on putting customers first and improving the service we give them, and this is continuing in special administration. This means using technology to solve common problems for customers, freeing up our employees’ time to focus on more complex issues, and making sure customers can speak to us quickly when they need to.
The UK energy market should be an exciting place to invest. Investors see the potential of new technology and believe there’s a space for energy suppliers without generation assets to succeed, but in Bulb’s experience, couldn’t go ahead while energy suppliers had to sell energy at a substantial loss.
There are undoubtedly things we should have done differently, but our customers were always our first priority and we made the decisions we thought we should at the time.
We think there are several workable solutions: reforms to the price cap methodology; measures to ban the loyalty tax; price comparison website regulation; scrapping autoswitching proposals; a focus on energy efficiency and incentivising greener choices; and market reform.
Reforms to the price cap would allow people to feel the benefits of cheaper, greener energy produced in the UK. By making sure the energy price cap reflects the cost of energy, and by updating it quarterly, suppliers of all sizes would be able to align hedging strategies better without posting large sums of collateral. This would free up capital to invest in new technology, and enable suppliers to hedge better in line with wholesale prices. Alongside Ofgem’s new stress tests and milestone checks this would ensure competition and innovation while protecting consumers.
In the longer term, suppliers must make all tariffs available to all customers and there should be a relative price cap for each supplier. Exclusive tariffs should be banned. Insurers have been banned from ‘price-walking’ - where new customers are offered better deals than loyal customers. This could work in the energy industry by making sure all customers have access to the same tariffs. A relative price cap for each supplier would limit the difference between a supplier’s most expensive and cheapest tariff. A relative cap would complement a ban on exclusive tariffs by preventing unsustainably low pricing.
Price comparison websites should be subject to greater regulation. This will help shift regulation from a ‘race to the bottom’ purely focussed on price, to a market where suppliers are incentivised to develop innovative products like time-of-use tariffs and compete on customer service. It’s good that BEIS has started looking at this, but we urge them not to delay on further progress.
Autoswitching proposals in the Energy Retail Strategy should be scrapped. It’s right that BEIS has paused policy development on these proposals. While switching has traditionally been a measure of a healthy market, it isn’t fit for the energy transition. It’s also clear that vulnerable and fuel poor customers don’t benefit from a focus on switching. With wholesale prices estimated to stay volatile for several years, the market will need to engage effectively with them to make sure they don’t get left behind. To this end, we recommend the autoswitching proposals laid out in the Energy Retail Strategy are scrapped.
A greater focus on promoting energy efficiency and low-carbon heating would send positive signals to investors. Shifting environmental and policy costs from the electricity bill to general taxation would give some immediate relief to consumer bill increases in 2022, while sending a clear signal to the market and encouraging investment into low-carbon heating, like heat pumps.
Prioritising smart tariffs and the smart meter rollout will help customers reduce their energy use with new technology. Customers can reduce their energy usage with intelligent and automated demand-side response (DSR). The government should support suppliers to deliver smart tariffs and the smart meter rollout so that consumers can benefit from the cheaper, greener, energy being produced in the UK. As the smart meter rollout continues, the responsibility for the final stages should now be passed onto networks to free up costs and time from suppliers so they can support existing customers.
The government should bring forward mandatory half-hourly settlement to 2023 to ensure suppliers are settling for their customers’ energy in near real time. Half-hourly settlement is beneficial to the system as it gives them all the tools to know what customers consume - and therefore what energy suppliers should pay for more accurately. It's then up to suppliers to decide if they want to socialise the costs across their customers or introduce time of use tariffs, which would only benefit customers who can afford to change their usage patterns.
The market can be strengthened while maintaining competition and innovation. As well as banning unsustainable tease and squeeze tactics, Ofgem should look to the banking industry for an effective stress test model that makes sure suppliers of all sizes are able to weather extreme but plausible scenarios. Stress tests should adapt to reflect the pressures that energy suppliers face. Electricity price volatility, for example, will only increase as we transition to a more renewable grid. Ofgem should streamline the way it approaches compliance so that suppliers can focus on raising standards on the things that matter, as well as strengthening their ability to face future shocks. And stress tests should apply across the industry, so there’s a level playing field for all suppliers.
We worked incredibly hard and did everything we could do to avoid special administration. There are things we should have done differently and we’re extremely disappointed in this outcome. We’re grateful for the messages of support from our customers and the kindness they’ve shown our team. We’re prioritising our customers, employees and the taxpayer as we aim to exit special administration quickly and minimise the burden on public funds.
We pursued every single option available to us. There were multiple parties who were interested in investing in or acquiring Bulb. But ultimately, the energy crisis in the UK and around the world concerned investors, who couldn’t go ahead while wholesale prices were so high and the price cap—designed to protect customers—meant suppliers were providing energy at a significant loss. We created and suggested solutions that would’ve minimised the cost to the taxpayer and allowed interested parties to invest or acquire Bulb with some form of government support. We had frequent meetings with the business department and Ofgem, and with potential investors, to reassure them about the investability of the UK energy retail sector and try to work together on a solution.
We cut costs and continue to do so to protect the taxpayer. Before the energy crisis, we narrowed our losses despite investment in people, technology and international expansion. We’ve reinvested our profits into growth, research and development, and creating good quality jobs.
During the pandemic we pulled back on our growth plans and stopped all advertising. We did this again when wholesale prices began to increase substantially and worked hard to cut costs during the energy crisis and into special administration. We conducted a spending review and paused cash bonuses for our team. Our CEO took a 100% pay cut and our senior leaders took a 15% pay cut during the pandemic. We paused hiring for all but essential roles. We reviewed all company spending and asked all departments to cut their costs.
We’re focussing on exiting special administration as soon as possible, minimising the impact on taxpayers, while helping members and supporting employees in the meantime. We’re doing everything we can to protect the taxpayer. We’re continuing to find cost savings and are working with our administrators to scrutinise all spending. Since we entered special administration we’ve continued to improve our service levels. We know the coming months will be extremely difficult for lots of customers as the energy price cap increases and consumers feel the impact of the rising cost of living, and we’re working hard to make sure they have all the support they need.