Why 2021 was annus horribilis for gas and electricity companies

·Business reporter
·5 min read
LONDON, ENGLAND - JULY 08: UK prime minister Boris Johnson visits the Energy Company Bulb today in Liverpool Street on July 8, 2021 in London, England. (Photo by Jeremy Selwyn - WPA Pool/Getty Images)
The biggest hit to the energy sector came last month, when Bulb, which is three times larger than any other firm that has failed so far, announced it would be put into administration. Photo: Jeremy Selwyn - WPA Pool/Getty Images

This year a total of 28 UK energy suppliers have collapsed into administration, displacing more than 4.3 million customers across the country.

The majority of those failures took place in the second half of 2021 as a rise in wholesale natural gas prices took its toll on the industry, climbing as much as six-fold in the recent quarter.

In September alone, nine suppliers went bust, including Avro Energy and People’s Energy, with business and energy minister Kwasi Kwarteng cautioning that more could collapse as the crisis persists.

Just weeks later Pure Planet, which was backed by oil giant BP (BP.L), and Colorado Energy both ceased trading. Energy regulator Ofgem moved affected households to new suppliers to protect customers.

The biggest hit to the energy sector came last month, when Bulb, which is three times larger than any other firm that has failed so far, announced it would be put into administration.

Due to its size as the seventh-largest energy firm in Britain, Ofgem applied to put Bulb into special administration, meaning it will be run by administrator Teneo until a potential buyer is found, or until its 1.7 million customers leave.

For now, Bulb is continuing to serve consumers despite the insolvency. Customers have been told that they do not need to do anything, and that there will be no change to their energy supply and credit balances.

Read more: Ofgem to put energy supplier Bulb in special administration

It was given £1.7bn ($2.2bn) from the UK government to continue supplying energy to customers, equating to around £1,000 per customer.

Teneo has estimated that it will cost around £2.1bn to keep Bulb trading until the end of April next year, however, Kwarteng is able to provide more money for the company if required.

The latest UK victim was Zog Energy, which supplied gas to around 11,700 households. In December it announced on its website that it had ceased to trade. 

Reasons behind the dramatic increase in power prices include low gas reserves, strong commodity and carbon prices, heightened global demand, and low wind output.

The UK's reliance on imports has also increased this year. For example, gas imports from Norway surpassed the UK's own domestic production during the first half of the year.

Factories were forced to suspend operations, with a leading fertiliser company closing two UK factories due to the price hikes.

Watch: Russia will supply more gas if Europe asks — Putin

In October, National Grid (NG.L) issued a stark warning that the UK was facing a greater threat of blackouts this winter, as well as tight electricity supplies.

The company’s electricity system operator (ESO) said Britain’s infrastructure will be able to get enough gas to see it through the winter period, but cut its forecast of buffer supply.

Around half of the country’s gas demand is used to heat homes, while another quarter is used to generate electricity.

Earlier in the year, a fire added to supply constraints, knocking out a key subsea cable that brought electricity from France, the UK’s top electricity supplier.

The blaze halted electricity imports via the 2,000 megawatt power cable, half of which is not expected to be available until 2022.

Read more: Gas prices jump as Germany suspends Nord Stream 2 certification

“Forward wholesale electricity prices are higher than last year,” the ESO said in its annual winter outlook.

“In addition, tight margin days are likely to see significant price spikes in the balancing mechanism.”

As well as soaring prices, the energy price cap has also been putting pressure on energy firms, which restricts what companies can charge consumers. This means energy is being sold for less than it is bought for.

The price cap on energy bills has risen £139 to £1,277 a year on average. Some experts have predicted it could increase from £400 by April to an excess of £1,600 per year.

Britain’s energy regulator has set out plans that would allow it to more frequently adjust a price cap that limits electricity and gas bills for more than 15 million households.

Read more: Shell warns of hit from rocketing gas prices

Meanwhile, a key gas supplier also exited the wholesale market this year. The company CNG, which is backed by commodities giant Glencore (GLEN.L), said it will no longer supply gas to its utilities clients.

It supplied roughly 46,000 small firms, as well as up to 15 small domestic energy suppliers, through its wholesale business.

Industry experts have forecast the number of suppliers in the market to fall to just 10 by Christmas. That compares to 71 in January this year.

Matt Howard, partner at accountancy firm Price Bailey, previously warned that at least another 10 firms are at maximum risk of failing.

“This time next year we will have far fewer suppliers and higher household energy bills,” he said. "Every time a supplier goes bust the costs of the remaining suppliers increase, which makes those businesses more vulnerable.

According to research firm Cornwall Insight, energy bills could climb by as much as 30% next year if gas and electricity prices continue to rise, and more suppliers go under.

Watch: Energy crisis: Zog becomes 25th household supplier to crash and burn since September

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