Two UK power companies collapse as ministers brace for more casualties

UK energy updates

Two energy companies with 835,000 customers between them on Wednesday joined the expanding list of suppliers to have gone bust in recent weeks, with UK ministers braced for further collapses amid the crisis caused by spiralling gas prices.

Warwickshire-based Avro Energy, which had 2 per cent of the British energy supply market with 580,000 domestic customers, is the largest supplier to have gone bust in at least the last decade. Newcastle-based Green supplied 255,000 households.

“Between two companies, 835,000 is an awful lot,” said a director at one larger energy supplier, which will now come under pressure from regulators to take on customers from those failed businesses.

Buying energy for that number of customers at current “eye-watering” wholesale prices would cost the “best part” of £1bn a year, the director added.

Avro Energy and Green were the seventh and eighth suppliers to go out of business in just six weeks. Citizens Advice, the consumer charity, said 1.5m households had been affected by the supplier failures.

Another supplier, Delta Gas and Power, has been put on official notice that it faces being expelled from the system that governs electricity trading in Britain, because of not meeting credit requirements.

Membership of the so-called “balancing system code” is a condition of a supplier’s licence. However, an expulsion notice can be revoked by Elexon, the body responsible for ensuring energy suppliers pay for the electricity they buy on the wholesale market, if a company manages to resolve the situation within 28 days.

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“You can’t be in the market without being in the BSC,” said Tom Edwards, senior modeller at energy consultancy Cornwall Insight.

Delta did not immediately respond to emailed requests for comment and calls to its publicly available telephone numbers.

Green, which had more than 185 employees, blamed “unprecedented” conditions in the wholesale gas and electricity markets as well as “regulatory failings” for its inability to continue trading.

The company fought back against accusations by some officials and members of parliament that struggling suppliers were guilty of “bad business practices” and poor hedging strategies, saying a global gas shortage had sent energy prices soaring.

The company blamed the method used to calculate the UK’s energy price cap, which protects 15m households, as well as “other factors outside of Green’s control” such as coronavirus lockdowns that increased domestic usage and forced it to purchase additional energy on the spot markets.

Ofgem, the industry regulator, said customers of Avro Energy and Green would continue to be supplied with energy. Any credit balances built up by households that pay via direct debit would be protected, Ofgem added.

The government has been in talks with the energy sector over the possibility of providing state-backed loans to larger suppliers that agree to take over the customers of failed rivals, at a time when wholesale costs have soared far above the level where adding new customers can be profitable.

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However, officials have said privately that no such system will be in place for the next fortnight.

Instead UK business secretary Kwasi Kwarteng signalled on Wednesday that he would prefer the energy sector resolve the growing crisis itself.

“The industry needs to look to itself for solutions in the first instance . . . I don’t think we should be rewarding failure,” Kwarteng told the House of Commons business select committee on Wednesday.

Under the “supplier of last resort” system, customers of collapsed suppliers are transferred to other companies in a process overseen by Ofgem. Where that proves unviable, the government has the power to appoint a special administrator.

Kwarteng said those powers could be sufficient. “I don’t think we need to go beyond them. But clearly we are planning for other contingencies, that’s what a responsible government does.”

The business secretary said he expected the number of failed retail suppliers to be fewer than the 40 or so predicted by industry consultants, a level that would leave the UK with only 10 providers.

“I’d be very surprised if we got to that figure,” Kwarteng said.

Ofgem has also warned five other small suppliers that they could have their operating licences revoked unless they meet their responsibilities to pay into a government scheme supporting renewable energy projects.

The five — Colorado Energy, Igloo Energy Supply, Neon Reef, Whoop Energy and Symbio Energy — collectively owed £765,000 under the government’s “feed-in tariff” scheme and had failed to pay their share by a September 17 deadline, Ofgem said.


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