Customers will have to cover the cost of the recent spate of UK energy company failures through higher bills, the boss of Scottish Power has warned.
According to Keith Anderson, the energy market was broken, and the government’s price cap was largely to blame.
Bulb Energy, which has 1.7 million customers, is set to go into administration this week.
It is the largest energy company to have run into trouble as a result of this year’s sharp rise in wholesale gas prices.
Bulb will be placed under “special administration,” which means it will be run by the government through the energy regulator Ofgem.
When an energy company goes bankrupt, the regulator usually appoints another provider to take over its customers. That company must then purchase additional energy and repay any credits owed to the failed provider’s customers – costs that the rescuer company will recoup through household bills.
Mr Anderson stated that it would occur at a time when gas and electricity prices are already at multi-year highs.
“We’ve already seen the price cap go up by £150-180 [to accommodate rising prices], and everyone predicts that the price cap will go up by several hundred pounds in April,” he said on the BBC’s Today programme.
“Then there’s the cost of all of these market failures, regulatory failures, and company failures. They’ll show up, and all of the customers will have to pay for them as well “He stated.
“It’s unfortunate to say, but due to the state of the market, you’ll be looking at two or three price increases in the near future.”
At least 20 energy companies have gone bankrupt in the United Kingdom since the beginning of September, as the price of wholesale gas has risen globally.
In October, Ofgem increased the price cap on household gas and electricity bills by 12% to £1,277. However, a number of businesses failed because they were unable to pass on the wholesale price increase to customers.
Mr Anderson claimed that there had been an influx of companies into the UK energy market in recent years, many of which he claimed were poorly run and underfunded.
He claimed that these businesses were now struggling to deal with “unsustainable” market conditions, such as rising wholesale energy prices and the energy price cap, which limits what providers can charge.
“What we need to see are wholesale changes in policies and regulations to ensure that the companies in the market are sustainable, well-funded, and well-managed. This practise of companies putting their customers’ money at risk in order to fund their business must end “He stated.
The price cap would remain in place to protect consumers, according to the Department for Business, Energy, and Industrial Strategy.
“[It] will remain in place this winter to prevent a wave of instant bill increases, ensuring millions of customers pay a fair price for their energy,” a spokeswoman said.
“The price cap was designed independently and in consultation with industry by energy regulator Ofgem to ensure prices are fair for consumers and suppliers.”
However, Justina Miltienyte, an energy policy expert at Uswitch, stated that the cap is currently “not delivering for either customers or suppliers.”
“The price cap was intended to prevent customers from overpaying while forcing suppliers to operate more efficiently,” she told the BBC.
“However, suppliers are unable to recover their costs, and while customers are currently, but inadvertently, protected from a sharp increase in their bills, many continue to be unable to afford the current price cap rates,” she added.
What happens if your energy supplier goes bust?
- Customers will still continue to receive gas or electricity even if the energy supplier goes bust. Ofgem will move your account to a new supplier, but it may take a few weeks. Your new supplier should then contact you to explain what is happening with your account
- While you wait to hear from your new supplier: check your current balance and – if possible – download any bills; take a photo of your meter reading
- If you pay by direct debit, there is no need to cancel it straight away, Citizens Advice says. Wait until your new account is set up before you cancel it
- If you are in credit, your money is protected and you’ll be paid back. If you were in debt to the old supplier, you’ll still have to pay the money back to your new supplier instead
Bulb, the UK’s seventh largest energy company, announced on Monday that it would go into administration after failing to raise the necessary funding from investors.
The government will take over the company’s operations under the Special Administrator Regime (SAR) while its future is determined. This could take the form of a takeover by another company, the sale of parts of its business, or the transfer of customers to another firm.
The company, which was founded in 2015 to compete with the Big Six energy companies, serves 5-6 percent of the UK energy market and employs 1,000 people.