Trystan Casey
The energy market has been tumultuous in recent years, with rising wholesale energy prices forcing many electric companies out of business. Since 2018, 68 energy suppliers have folded, affecting nearly 6 million customers. The recent flood of bankruptcies has been triggered by the energy crisis, with smaller firms unable to afford skyrocketing prices. Some of the companies that have gone bust include Yorkshire Energy, Green, Avro Energy, Bulb Energy, Orbit Energy, and Entice Energy.
| Characteristics | Values |
|---|---|
| Number of energy suppliers that have gone bust since 2018 | 68 |
| Number of customers affected | 6 million |
| Reason for energy suppliers going bust | Rising wholesale energy prices |
| Energy suppliers that have gone bust | Yorkshire Energy, Whoop Energy, Xcel Power Ltd, Together Energy, Zog Energy, Orbit Energy, Entice Energy, Bulb Energy, Social Energy Supply, Neon Reef, CNG Energy, Zebra Power, Omni Energy Ltd, Ampoweruk Ltd, MA Energy, Bluegreen Energy, GOTO Energy, Daligas, Pure Planet, Colorado Energy, Igloo Energy, Symbio Energy, ENSTROGA, Avro Energy, Green Supplier Limited, Hub Energy, PFP, MoneyPlus, Utility Point, People's Energy, Good Energy |
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What You'll Learn
Rising wholesale energy prices
The energy crisis in the UK has been building up over the past year, with rising wholesale energy prices driving up the amount that energy providers pay for gas and electricity. This cost is then passed on to the consumer. The recent energy price crisis is driven by the price of fossil fuels, with high gas prices likely to persist for some time.
Wholesale energy prices began to increase rapidly from the second half of 2021 and throughout 2022. This increase was initially triggered by the reopening of economies after pandemic-related lockdowns, which caused an increase in demand. However, the reduced supply of fuels from some producers due to the conflict in Ukraine exacerbated the issue. The monthly increases in gas and electricity prices in April 2022 were the largest ever recorded, with annual increases to October 2022 also breaking records.
The energy price cap, which was intended to stop suppliers from overcharging by reflecting the true cost of supplying energy, provided some protection to customers. Additionally, governments introduced various support programs, such as the Energy Bill Support Scheme and the Energy Price Guarantee, to limit bills. The Energy Price Guarantee, introduced in October 2022, set a maximum price for gas and electricity below the existing price cap. This scheme was initially set to last for two years, providing support to all households regardless of income.
Despite these interventions, the rising wholesale energy prices have had a significant impact on energy suppliers, with many companies finding themselves selling gas and electricity at unsustainable losses. As a result, several energy suppliers have gone bust or ceased trading, including Yorkshire Energy, Green, Avro Energy, and Bulb Energy.
The energy crisis has also had broader economic implications, with businesses warning of a "cost of doing business crisis" as they navigate higher energy bills on top of existing challenges. The energy sector's struggles highlight the urgent need to transition to net-zero greenhouse gas emissions and build resilience against future price shocks.
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Government price caps
The energy price cap is decided by the energy regulator, Ofgem, and is reviewed twice a year. It changes in line with wholesale prices and sets a limit on the amount paid per unit of gas and electricity. The price cap covers around 22 million households in England, Wales, and Scotland.
The price cap is designed to protect consumers from rising wholesale energy prices. However, in some cases, it has had the opposite effect, with energy companies unable to pass on the full rise in costs to their customers. This has resulted in some companies selling gas and electricity at a loss, leading to financial distress and, in some cases, collapse.
In response to the cost-of-living crisis, the government has introduced measures to support vulnerable customers, including account credits, eligibility checks for the Energy Company Obligation scheme, and tailored energy efficiency advice. The Warm Home Discount Scheme provides a one-off payment of £150 to help with winter energy costs for those on low incomes or pensions.
The government has also offered help to companies facing rising energy costs, stating that the price cap scheme will run for six months instead of 24. However, full details of how the price cap will be applied are yet to be provided.
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Market volatility
The energy market has been described as "tumultuous" in recent years, with rising wholesale energy prices causing many energy suppliers to cease trading or go bust. This volatility in the market has been driven by several factors, creating a challenging environment for energy companies.
One of the primary factors contributing to market volatility is the significant increase in wholesale energy prices, particularly natural gas. By early 2022, natural gas prices had risen by over 300% compared to the same period in 2021. This spike in prices has placed immense financial strain on energy suppliers, especially smaller firms, as they are unable to pass on the rising costs to consumers due to the government's price cap. As a result, many companies have been forced to sell energy at unsustainable losses, leading to their demise.
Additionally, the energy landscape is becoming increasingly complex and volatile due to the transition to renewables. The power value chain has evolved, with consumers now also acting as prosumers as new business models emerge. The integration of renewable energy sources has increased demand and price volatility. The need for infrastructure upgrades, such as upgrading electric grids and adopting smarter technology, further complicates the transition to renewables and adds to the market volatility.
The COVID-19 pandemic, the invasion of Ukraine, and the resulting supply chain disruptions have also played a role in amplifying market volatility. These events have disrupted global supply chains and raised the prospect of an economic recession, impacting both energy companies and consumers.
Furthermore, energy companies face pressure to reduce carbon emissions, impacting their operations and contributing to market volatility. The defensive play for companies may be to ramp down production and explore other markets with more competitive energy sourcing and costs. However, this strategy may make it challenging to meet sustainability goals without additional measures, such as investing in power production and renewable energy sources.
The volatile nature of the energy market has left customers uncertain about their chosen providers, with a significant number of energy suppliers ceasing operations since 2018. This turmoil in the industry has led to concerns about the need for government intervention to protect consumers and ensure a stable energy market.
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Poor business models
The energy market has been described as "tumultuous" in recent years, with the landscape of operational energy suppliers undergoing a "complete transformation". Since 2018, 68 energy suppliers have folded, affecting nearly 6 million customers.
The recent flood of energy supplier bankruptcies has been triggered by the energy crisis, and the energy price cap, which prevents suppliers from passing on rising wholesale energy prices to consumers. As a result, several companies have been selling gas and electricity at unsustainable losses.
Yorkshire Energy, which ceased trading on 2 December 2020, is an example of a company whose business model was ill-equipped to deal with the challenging market conditions. With a revenue run rate of around £60m per annum and decent customer service reviews, Yorkshire Energy appeared to be making decent progress. However, their problem, like many other failed energy suppliers, seemed to be their business model.
Another company that has struggled due to a poor business model is Bulb Energy, which went bust on 22 November 2021. Bulb Energy was a startup that rapidly grew to become Britain's sixth-largest energy supplier with 1.7 million customers. However, it struggled to secure funding and was forced to seek a bailout as it grappled with the energy crisis.
Igloo Energy, which called in administrators and stopped taking on new customers in 2021, is another example of a company with a poor business model. Avro Energy, which collapsed in 2021, also cited "unprecedented market conditions and regulatory failings" as the reason for its demise.
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Inability to pay government levies
Energy suppliers have been facing a challenging environment due to rising wholesale energy prices. This has resulted in many companies selling gas and electricity at a loss as they are restricted by the Ofgem price cap on how much they can charge customers. As a result of this unsustainable situation, several energy suppliers have gone out of business since 2021.
One of the factors contributing to the financial distress of energy suppliers is their inability to pay government levies, such as the Renewables Obligation. When suppliers fail to pay these levies, they are subject to substantial fines, further exacerbating their financial difficulties. This situation has led to a significant number of suppliers going out of business, particularly those offering both domestic and commercial energy tariffs.
Symbio Energy, for instance, faced issues with non-payment of their renewables levy and was criticized by Ofgem for this very reason. Their financial troubles were compounded by poor customer service ratings, which likely impacted their ability to retain customers and generate sufficient revenue.
Another example is Green Supplier Limited, which blamed its collapse on "unprecedented market conditions and regulatory failings." The company had previously joined 14 other small firms in calling on the government to review its price cap policy, arguing that it forced them to sell gas at a loss due to their inability to pass on rising wholesale prices to consumers.
The impact of these corporate failures is significant, as seen with Bulb Energy, which had 1.7 million customers and was placed in Special Administration. The government and regulator appointed Teneo to run the business temporarily, with an uncertain future ahead. These failures highlight the delicate balance between consumer protection and ensuring the stability and viability of the energy market.
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Frequently asked questions
Since 2018, 68 energy suppliers have folded, leaving nearly 6 million customers in the lurch and forced to switch providers. Some of the companies that have gone bust include:
- Avro Energy
- Green Supplier Limited
- Hub Energy
- Yorkshire Energy
- Whoop Energy
- Zog Energy
- Orbit Energy
- Entice Energy
- Bulb Energy
- GOTO Energy
- Pure Planet
- Colorado Energy
- Igloo Energy
- Symbio Energy
- ENSTROGA
The primary reason for energy suppliers going bust is the rising wholesale energy prices in the energy market. By early 2022, the price of natural gas had escalated by over 300% compared to the same period in 2021. Ofgem's domestic energy price cap restricts energy suppliers from charging more than the set amount for the energy they provide to customers. As a result, several companies have been selling gas and electricity at unsustainable losses.
If your energy supplier goes bust, your energy supply will not be interrupted. The regulator Ofgem will switch all their old customers to a new supplier automatically. You will be assigned to a Supplier of Last Resort (SoLR), but you are not obligated to sign a contract with them. You have the freedom to explore better energy providers and deals.
