Gas prices: What happens if my energy supplier goes bust?

22 November 2021, 15:35

Gas prices are set to soar and more companies are set to go out of business
Gas prices are set to soar and more companies are set to go out of business. Picture: Alamy

By Daisy Stephens

The price of gas has soared in recent weeks, putting several energy suppliers out of business and forcing some factories to stop production. But what happens if your energy supplier goes bust?

What happens if my supplier goes bust?

If your energy supplier goes bust then the message is to sit tight. Ofgem, Britain's energy regulator, will move you to a new supplier.

You should take pictures of your meters and download - or print out - your bills from your old supplier.

If Ofgem moves you to a supplier or a deal you are not happy with, you can then shop around.

If your energy supplier owes you money, your money is protected and you should get it back.

Read more: Gas price crisis: Taxpayers 'face multibillion pound bill' bailing out energy firms

What if my supplier enters special administration?

Special administration is designed to allow customers to continue to operate as usual, meaning tariffs will not change and the price cap applies to all consumer energy tariffs.

Bulb has become the first company to rely on regulator Ofgem's special administration regime.

The company is Britain's seventh-biggest energy supplier, and it was placed into special administration in November.

It will continue to supply its 1.7 million customers.

Top up customers will also remain unaffected and any customer in the process of switching to or from Bulb, will continue with the switch as normal.

In the past, failed suppliers have been small enough for their customers to be picked up by one of their rivals.

Bulb's parent company, Simple Energy, will also enter administration. However, Bulb's international businesses in France, Spain and the US will continue trading.

Will my bills go up?

If your energy supplier stays afloat, your bills might go up - but it depends what kind of deal you're on.

Prices were already set to rise for the 15 million households in Great Britain that are on their supplier's default tariff because of a major hike in the energy price cap.

Ofgem had been criticised for the rise, which is coming into force on October 1, but the price cap is now actually one of the better deals on the market.

Many other energy customers are locked into year-long deals which will fix their price for the 12 months of the contract. If your contract is coming to an end shortly you will probably have to change to a more expensive deal.

Ofgem has said consumers can expect an average price rise of £135 this winter.

Why are prices soaring?

There are many reasons for the increase in prices. The economy is opening up from its pandemic lows, so demand for gas is increasing.

Europe is also about to start entering winter, when gas demand will be highest, especially from countries such as the UK which overwhelmingly rely on gas to heat homes.

Read more: Gas crisis: 'Customers will be protected if energy companies go under'

But a perfect storm of other problems has also hit the sector. Supply from Russia has dried up recently, and demand is high in Asia, which is putting pressure on international markets.

In the UK, several gas platforms in the North Sea have closed to perform maintenance that was paused during the pandemic.

In a further stroke of bad luck, cables that import electricity from France were damaged last week, and September has not been a very windy month. These problems have meant that more gas is needed to produce electricity.

Explaining why the company has struggled, Bulb Engery said: "Wholesale prices have skyrocketed and continue to be extremely volatile.

"The gas supply shortage combined with lower exports from Russia and increased demand means they remain high and unpredictable. Prices have hit close to £4.00 per therm recently, compared with 50p per therm a year ago.

"We’ve always been big supporters of the idea of a price cap to protect customers, but the current price cap is set at a level around 70p per therm, well below the cost of energy."

Why are suppliers going bust?

Simply speaking it is because many companies have promised to sell gas to customers for less than it is currently costing them to buy.

When they sign a fixed-term deal, households are promised that they will pay the same price for the gas and electricity they use during that entire period.

The energy suppliers expect the gas price to go up and down, and will often give themselves some headroom for rises.

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But unprecedented recent price rises mean that a lot of customers are now paying suppliers less for energy than it costs the suppliers to buy that energy, which is obviously not a sustainable business model.

So far five energy suppliers have gone out of business in recent weeks, with some predicting that dozens more could follow before the end of the year.

What are energy companies doing about it?

Many energy companies will fight tooth and nail to avoid going under.

Some will have hedged - a type of insurance that steps in if prices rise too much. Companies that have hedged are more likely to stay afloat.

But like all insurance, hedging costs money. So many suppliers - who are living on razor-thin margins anyway - decide not to. A lot of these are now paying the price.

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Other companies are looking for bailouts. The UK's sixth largest energy provider, Bulb, is reportedly working with financial advisory firm Lazard in an attempt to secure funding to prevent the company from going under.

There are also reportedly Government plans for taxpayers to bail out the companies, with Boris Johnson pledging to do "everything we can" to stop companies collapsing.