Consumers will need to pay £2.7bn to cover the costs of 28 energy suppliers failing since June 2021, according to the government’s spending watchdog.
The National Audit Office (NAO) said bill payers had “borne the brunt” of the failures and accused energy regulator Ofgem of creating a market “vulnerable to large-scale shocks”.
A swathe of energy suppliers have collapsed over the past year as a sixfold spike in the cost of wholesale gas between February and December 2021 crippled companies who were unable to increase costs to customers because of the government’s energy price cap.
Ofgem had embarked on a drive to open up the market to smaller players before the price crunch. But big energy suppliers have argued that new entrants should have hedged greater proportions of their energy.
The failures are expected to cost about £94 per customer. The costs, which included missing payments by failed suppliers into government schemes to support renewable generation, are shared across all energy bills, not just for the customers of failed suppliers.
On top of the £2.7bn, the government is spending taxpayer funds to support green energy supplier Bulb, which collapsed last November. Bulb, which has 1.6 million customers and is the largest supplier to have failed, is in a special administration funded by the government.
Last financial year, the government spent £900,000 on an administrator to run Bulb and expects to spend a further £1bn this year. The final bill will not be clear until Bulb exits administration. A trio of bidders – British Gas, Abu Dhabi’s Masdar and Octopus Energy – are understood to be interested in Bulb.
Gareth Davies, the head of the NAO, said: “By allowing so many suppliers with weak finances to enter the market, and by failing to imagine that there could be a long period of volatility in energy prices, Ofgem allowed a market to develop that was vulnerable to large-scale shocks.”
The NAO recommended that the government and Ofgem should establish a process for considering the impact of new interventions in the retail market, like the price cap. It also said Ofgem should define a set of objectives for its regulation of the retail market and report on its performance.
Ofgem is tightening rules around the financial resilience of suppliers, consulting on whether to set the price cap quarterly and on ringfencing consumer credit balances.
Dame Clare Moriarty, chief executive of Citizens Advice, said: “It’s totally unacceptable that suppliers entered the market without proper checks and that customers were landed with a multibillion-pound bill as a result.”
Nigel Pocklington, chief executive of green energy supplier Good Energy, said: “Ofgem is taking action now but at this point the suppliers still standing are generally well run – the stable doors are closing after the horses have bolted.”
Ofgem said it “accepts” the report’s findings and is “already working hard to address all of the issues raised”.