Supplier failures could add £45 to household bills

When a new supplier takes over from a failed company they can charge their expenses to households across Britain.

A domestic gas ring
A domestic gas ring

Energy bills might go up by a further £45 for all households in Britain just to cover the cost of suppliers going bust, according to a new estimate.

Experts at energy consultancy BFY Group said suppliers which pick up the pieces from recent failures will be able to claim back close to £1.3 billion in expenses from British households.

On Wednesday, two further suppliers, with around 250,000 customers between them, went out of business.

Since the start of September around two million households have seen their energy supplier collapse.

Industry regulator Ofgem has already appointed new suppliers for most of those households, but being a so-called Supplier of Last Resort is not cheap.

Companies tasked with supplying these customers have to buy the energy they think households will use in advance – a process known as hedging.

But the same gas price increases that are causing energy suppliers to fail will also make it expensive for the replacement suppliers to pick up the pieces.

CONSUMER Energy
(PA Graphics)

Hedging 12 months in advance is currently roughly twice as expensive as it was a year ago, and to buy gas for the winter months is five times the old price.

Last-resort suppliers can apply to Ofgem to claim back some of the costs they have racked up during the process.

BFY estimates the money that is claimed back could reach around £630 for each of the two million households from suppliers that have failed so far, a total of nearly £1.3 billion.

This cost will be added to the bills of all UK households, costing them an average of £45 each.

This will help push the energy price cap to approximately £1,600, according to BFY’s calculations, from £1,277 today.

But there is likely to be more to come.

Several other suppliers are facing difficulties, and some industry insiders have speculated that another two million, or even more, households could see their energy supplier fail in the coming weeks and months.

This would place an even greater burden on suppliers, and ultimately on household bills.

Suppliers are also facing pressures from their own customers who are coming to the end of their fixed-term energy deals, BFY said.

Normally they would shop around for a better deal, but at the moment the cheapest option is their current supplier’s price cap tariff.

But the energy firms will make big losses from these customers, because the price cap is lower than the cost to suppliers of buying the energy that customers will need.

The price cap is expected to rise steeply in April, but until then companies will be making major losses on the gas they provide to customers.

BFY managing partner Ian Barker said: “For the suppliers who are able to weather the storm, they are facing £1.7 billion to £2 billion of losses over the next six months for customers who are being advised not to switch and to stay on the price cap with their current supplier.”

On Thursday, the boss of manufacturing giant Ineos warned that gas prices will stay high all winter, potentially forcing industry to close.

Appearing on ITV’s Peston, Sir Jim Ratcliffe said the UK’s lack of storage has left it vulnerable.

Asked if the country could shut down due to a prolonged cold spell, he replied: “Yeah, in which case then what you would do is you’d shut down industry.”

He added: “Four years ago, when we had the, if you remember, the Beast From The East, we were within a day or two of running out of gas in the UK.

“If we had run out of gas it would have been a disaster for, you know, the older people who wouldn’t have been able to get heating in the house, for industry which would have had to shut down. But we were within days, and we did make that point.”

Labour leader Sir Keir Starmer said his party wants the Government to “come out of hiding” and work with business on the issue.

He said: “They’ve put their out-of-office on. Whilst other countries step up and act, the UK is staggeringly complacently sitting back.”

The Department for Business, Energy and Industrial Strategy said ministers and officials are engaging with industry “to further understand and to help mitigate the impacts of high global gas prices”.

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