Two energy suppliers collapsed on Wednesday as the deepening gas supply crisis has now impacted 1.5 million customers.
Avro Energy and Green became the latest casualties of a more than three-fold spike in the wholesale cost of natural gas, with regulators warning that more firms are likely to go bust over the winter. Seven suppliers have already gone under in a matter of weeks.
Another medium-sized supplier, Igloo, is reportedly on the verge of collapse, with administrators said to be assessing the options for insolvency.
The latest corporate failures will add to households’ worries at a time when the rate of inflation is rising sharply and incomes are set to be squeezed by a hike in national insurance contributions next year.
Millions of the least well-off households will also see their income slashed next month when universal credit payments are reduced by £20 a week, while economists have warned of a rise in unemployment when the furlough scheme ends next week.
The rapidly expanding scale of problems in the energy industry will test to the limit the arrangements that are in place to ensure customers of failed businesses are switched over to new suppliers with no interruption to their gas and electricity.
With 580,000 customers, Avro Energy is by far the largest company to go out of business so far, prompting questions over whether the “supplier of last resort” system can cope.
Kwasi Kwarteng, the business secretary, has said the government will not bail out energy businesses that are in financial trouble, but ministers are considering state-backed loans for companies that take on additional customers from failed suppliers.
Director of retail at energy regulator Ofgem, Neil Lawrence, sought to reassure affected customers that they would not lose out as a result of their supplier going out of business.
“Ofgem will choose a new supplier for you and while we are doing this our advice is to wait until we appoint a new supplier and do not switch in the meantime,” he said. “You can rely on your energy supply as normal.”
However, people who are switched to a new supplier under the scheme could see their bills rise.
Labour accused the government of complacency in its approach. Shadow energy minster, Ed Miliband, called for his opposite number to “come clean” about the severity of the threat to suppliers and “recognise the economic hardship facing working people”.
“It’s becoming increasingly clear that the impact of soaring global gas prices on UK businesses and families is going to be stark, because key government failures mean our energy system is not resilient enough.”
Mr Kwarteng faced a grilling in parliament on Wednesday, including questions over why the government allowed the 2017 closure of the Rough gas storage facility to go ahead. The site accounted for 70 per cent of the country’s storage capacity.
The business secretary claimed that the issue was a “slight red herring” because having more storage capacity does not change the global price of gas.
He also said preparations were being made for gas prices to remain high for some time, despite Boris Johnson describing the problem as “temporary”.
Announcing that it would cease trading, Green issued a combative statement that was highly critical of the government. The company blamed its collapse on “unprecedented market conditions and regulatory failings” which it said had left smaller energy suppliers behind.
Green had been a vocal critic of the energy price cap, calling on ministers to review the policy which has left suppliers selling power at a loss because they are unable to pass on rising costs to customers.
The firm was among 15 small energy suppliers that wrote to Ofgem and government ministers this week demanding a review of “outdated” energy price cap rules and calling for an immediate package of financial support.
Those calls were rebuffed by Mr Kwarteng who said the government would not bail out what he characterised as badly managed companies.
Green hit back at that characterisation, saying it feared smaller energy suppliers had been left behind by the government, with rescue packages being put in place for larger firms given privileged access to “private discussions” with the minister.
Moments after Green’s announcement, Avro Energy became the seventh supplier to cease trading in recent weeks as wholesale gas prices have jumped to 250 per cent of their January level.
Sharply rising demand as the world emerges from the pandemic has combined with a host of factors restricting supply.
An unusually cold winter in Europe left stocks low, while demand has been strong in Asia. A lack of wind has meant the UK relied more on gas than in previous years.
Meanwhile, Russia has provided less gas to Europe in a move that many believe is designed to exert its power over EU countries blocking the opening of the long-awaited Nord Stream 2 pipeline.
The latest energy supplier failures will add to consumers’ worries at what is an “extremely unsettling time”, said Gillian Cooper, head of energy policy for Citizens Advice.
Supplier collapses and rocketing energy prices, combined with the looming cut to Universal Credit, are creating huge amounts of uncertainty for millions of people.
“There are protections for energy customers in place. They won’t lose their supply; their credit balances are protected; and the price cap limits the cost of bills,” Ms Cooper said.
“The government and Ofgem must also guarantee no one will lose access to the Warm Home Discount when they are moved to a different supplier. And customers in debt to failed suppliers should continue to have access to affordable repayment plans.”
News that both Green and Avro Energy had collapsed came shortly after the boss of Ofgem warned that more energy suppliers were likely to be forced out of business.
“Have a look at the change in the gas price – it really is something that we don’t think we’ve seen before at this pace,” Jonathan Brearley told MPs on the Business, Energy and Industrial Strategy Committee.
He declined to give an estimate on numbers of firms that might go bust but said: “We do expect more [suppliers] not to be able to face the circumstances we’re in.”
He added: “We expect a large number of customers to be affected, we’ve already seen hundreds of thousands of customers affected, that may well go well above that.
“It’s very hard for me to put a figure on it.”
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