How much more will consumers pay if their energy provider goes bust?

Millions of households could see their bills increase if they are forced to switch to another supplier

Holly Bancroft
Thursday 23 September 2021 17:16

Nearly 1.5 million consumers have been affected by the energy supply crisis in the last two weeks and thousands more are likely to be impacted.

Avro Energy, a company supplying 580,000 households, collapsed on Wednesday, making it the largest to fail so far. Green, which has 255,000 customers, also ceased trading.

Seven suppliers have collapsed this month due to the impact of sharp rises in the price of wholesale gas on the industry. Millions of households could now face higher prices for gas in the coming months and experts predict that problems will last into the new year.

What happens if my energy provider goes bust?

Seven energy suppliers – Hub, Money Plus, Utility Point, People’s Energy, PFP, Green and Avro – have all been forced out of business.

If you were with one of these companies then there will be no halt in your supply of gas and electricity.

Your account will be moved to a new supplier, a process known as the “supplier of last resort”, although this might take a few weeks.

It is likely that you will have to pay higher bills for your energy however. The default tariff cap set by regulator Ofgem rises to £1,277 per year from next month. As a result, many customers will be transferred to companies who will charge up to this rate for supplying a new package.

This will mean a significant price hike for people who had found cheap deals with smaller suppliers. Customers who took out one-year-fixed-price deals with Avro in March will have signed up to pay £920 a year, for example.

Millions of households could see their bills increase by more than £350 when they are bumped up to the capped rate of £1,277.

Scott Byrom, chief executive of The Energy Shop, explained the situation, saying: “Consumers did what Ofgem advised and shopped around to find a better energy deal.

“If we look at customers who switched to Green, one of the last suppliers to go bust, they were switching on to a 12-month fixed tariff back in May, with an average bill of £972 a year.

“Unless the supplier of last resort is going to honour them, which I very much doubt, they will be moved on to a contract on the standard variable rate – an increase of £305.

“Those customers are being punished at the worst possible time.”

Dr Craig Lowrey, senior consultant at Cornwall Insight, added: “Potentially customers are looking at increases of up to £300 a year, when they are moving from a supplier that was competitive on price to one that supplies the default tariff cap.”

Industry experts are also predicting that Ofgem’s capped rate is highly likely to increase in April as the regulator takes into account the soaring wholesale costs for businesses.

Cornwall Insight, a market research company, has predicted the price cap will jump to £1,455 when it is updated next year and The Energy Shop predicted a rise to £1,555.

If you are not with one of the seven firms that have already gone bust, there is a chance the crisis could yet affect your energy supplier.

Some analysis from experts at Baringa Partners for The Times found that by the end of winter the market could shrink to only 10 energy suppliers.

Bulb, the UK’s sixth-largest energy firm with 1.7 million customers, is trying to bolster its finances and another firm, Igloo, is working with restructuring consultants.

If I have a high credit balance, will it get carried over to my new supplier?

It is likely that any credit balance you have built up will be carried over to your new supplier. At this time of year, customers will typically have built up hundreds of pounds in credit over the summer period, when they use less energy.

Mr Byrom said customers can rest assured that their credit will still stand with their new supplier. “Any credit on the account will be honoured. If you are with a supplier and you are £200 in credit, it will still stand with whichever supplier picks up your account.”

Customers have been advised to take a note, or picture, of their current meter readings and energy bills so they have the right information on record if any issues arise.

How long are the issues set to last?

Jonathan Brearely, the chief executive of Ofgem, has said that he expected more companies to go bust and for more customers to be affected. Speaking at the Commons business select committee hearing on Wednesday, he said: “I do think this is a different kind of change.

“The sector has faced shocks. But when you see that change it really is something we don’t think we’ve seen before at this pace. Let’s just start with customers.

“When you see costs like this change, ultimately that will feed through to bills. It is true that there are many suppliers under huge pressure now because of that change in their cost base.”

Dr Lowrey said these were the most volatile set of market conditions that a lot of people in the industry had ever experienced.

He said: “I have been in and around the energy sector now for 27 years and the closest situation I’ve seen to this was the fallout from Enron leaving the market in 2001, and that cascaded well into 2002 and 2003.

“This is very much unchartered territory for the energy market.”

What assurances has the government given to consumers?

Business minister Paul Scully has said that the government could not guarantee that consumers could keep the terms of their previous energy tariffs if their supplier goes bust.

Mr Scully told Times Radio on Thursday: “No, that’s not going to be possible in terms of a guarantee.

“What we’ll have though is security. They don’t need to do anything because their transfer will be made directly through the Ofgem scheme, making sure that they have a company looking after them, supplying their energy.”

Business secretary Kwasi Kwarteng told MPs on Wednesday that the government was making preparations for “longer-term high prices”.

He said that the government would not “reward failure” and bail out smaller suppliers. His department are instead organising for multibillion-pound state-backed loans for larger suppliers so they can take on the customers of smaller companies.

However, Mr Kwarteng said it was alarmist to talk about gas shortages. “There is no question of the lights going out, of people being unable to heat their homes. There will be no three-day working week, or a throwback to the 1970s.”

What will happen to small business customers?

Non-domestic customers are not protected by the energy price cap and are facing immediately soaring costs if their firms go bust.

Credit balances are also only protected for domestic customers and some small business owners have seen their bills trebled in the crisis.

Craig Beaumont, chief of external affairs at the Federation of Small Businesses, said: “Micro-businesses have always had more in common with consumers than corporates, and yet they don’t have the same transparency and legal protections, which we’ve argued for years that they should have.”

What is causing the energy supply crisis?

The crisis is being caused by a combination of issues. A squeeze on the supply of gas and energy has pushed up wholesale prices across the world by 250 per cent since January.

A lack of wind in Britain over the summer has also driven a slump in renewable energy output. As well as this, a recent fire at a National Grid site in Kent has added to the problems.

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