Ofgem: Collapsed energy firms could cost consumers £2.4bn

In a Business, Energy and Industrial Strategy (BEIS) Select Committee evidence session held on 22 March, Ofgem said in writing that “our current estimate for total claims” from failed energy firms “is approximately £2.2bn to £2.4bn”.

This money would later be recovered from bills charged to UK consumers, as the suppliers taking on customers must buy more energy on wholesale markets. They can charge the cost of that to local gas and electricity distribution networks from April.

In turn, those grid operators would add the extra cost to what they charge suppliers for use of their systems.

The money will eventually be added to household energy bills, which are predicted to skyrocket to £3,000 per year or more.

Ofgem said that about 85% of overall costs incurred by providers under SoLR were from buying wholesale energy supplies for new customers.

From 1 September 2021 to 22 December 2021, the claims totalled approximately £1.84bn. This equates to £68 per customer of the increase in the level of the price cap taking effect on 1 April 2022.  

These costs would form part of Ofgem’s Supplier of Last Resort (SoLR) programme, whereby when a supplier fails, Ofgem instigates a process to move the failed supplier’s customers to a new supplier.

Ofgem said: “The SoLR process is competitive. We expect suppliers to put forward their best bids, reflecting the value to them of the customers they will gain”.

Since the start of 2021, 30 energy suppliers have collapsed, fuelled by a drastic increase in gas prices in the winter months. 4.5 million customers have been affected.

During the BEIS Select Committee’s evidence session, Gillian Cooper, Head of Energy Policy at Citizens Advice, told MPs: “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”.