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British households face a collective bill of more than £820m for rescuing the customers of energy suppliers that have collapsed in recent weeks, according to research, with warnings the total cost could reach into the “billions of pounds” as more companies go bust, as expected, over the winter.
Research published by Investec on Monday suggested that the cost of rescuing the 1.5m customers whose suppliers have gone to the wall as the sector has struggled with record wholesale energy prices could translate into every household billed together for both electricity and gas paying in the region of £30 each.
Energy companies that have agreed to rehome customers from failed suppliers are able to recoup their costs, including the additional costs of buying energy on the wholesale markets for those households, via an industry levy that ends up on all consumers’ bills.
Martin Young, analyst at Investec, said the difference between how much suppliers can charge orphaned customers under Britain’s annual energy price cap — which increases to £1,277 from October — and the cost of buying energy at today’s record wholesale prices could result in an excess cost of “at least £550” per customer.
Applied to the 1.5m customers of the suppliers that have failed “this suggests that in excess of £826m might need to be mutualised”, Young said.
On Monday, Royal Dutch Shell’s UK electricity business was appointed to continue supplying the 255,000 customers of Green, a Newcastle-based group that was one of two suppliers that went bust last Thursday. In total, seven have failed in the past seven weeks.
Some industry experts have forecast that as few as ten suppliers could survive the winter, although Ofgem and the UK’s business and energy secretary Kwasi Kwarteng have dismissed those predictions as overly pessimistic. There were about 50 in the market at the end of March.
Analysts and chief executives are warning that Ofgem and the government are likely to come under increasing pressure as households realise they will ultimately have to foot the bill for what some see as regulatory failings, as well as unprecedented conditions in wholesale markets.
Gillian Cooper, head of energy policy at Citizens Advice, said customers “too often foot the bill for supplier failures”, adding: “Longer term, the current chaos in the energy market just adds to the case for stronger regulation to protect consumers.”
“What is absolutely 100 per cent clear is [that] what has happened is as a result of failed regulation,” said the chief executive of one top-ten supplier.
Ofgem has been criticised for inadequate checks into whether suppliers had enough capital to withstand wholesale market shocks, and introducing measures too late to ensure that entrepreneurs allowed to enter the market were “fit and proper”.
“It is not hard to imagine that customers of stronger suppliers who now find themselves having to foot the bill for market failures are going to be somewhat aggrieved, and looking to apportion blame,” said Young.
Ofgem said it could not confirm the potential costs to consumers of the latest crisis until “claims have been processed.” But it insisted it sought to “ensure that these costs are minimised”. Several supply companies described Investec’s estimates as “credible”.
The regulator insisted that “more suppliers coming into the market and greater competition has benefited customers. It has increased choice, resulted in new products and services and helped to keep prices low.”
“Over the last few years Ofgem has been introducing a programme of reforms to improve standards in the energy supply market,” Ofgem added.
Keith Anderson, the chief executive of ScottishPower, warned on Friday that the ultimate bill for households could stretch into the “billions of pounds”.