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Why Are Energy Suppliers Going Bust In 2021?

Updated on
min reading
gas burner

As Bulb, Orbit and Entice Energy become the latest casualties of the ongoing energy crisis, many customers are wondering what is going on with the energy market in the UK. In this article, we’ve detailed the main reasons why the UK is experiencing such a turbulent time.

The last few weeks have been particularly dramatic in the UK’s energy market. In the last three months alone, we’ve witnessed the collapse of twenty-two energy suppliers affecting millions of customers who depend on these companies for their gas and electricity.

Of course, many customers are likely to be worried about these serial collapses and want to know exactly why the UK is having such a tough time compared to other countries. We want to provide customers with the information about why the rising gas prices are having such an effect on the UK energy market.

Why Are Gas Prices Rising?

gas bill

Gas prices across the world have been experiencing a dramatic increase. In the wholesale market, the price of gas has increased astronomically over the past year and has affected the price of electricity and other utilities.

There are many reasons why wholesale gas prices have been rising so dramatically and all have contributed to the current crisis.

The COVID-19 Pandemic

When COVID-19 hit Europe and the UK in early 2020, supply chains across all sectors and industries experienced disruption. This disruption was due to national lockdowns, decreased travel between countries, and social distancing rules making it more difficult for suppliers to get goods and services to where they need to go.

A Cold Winter In 2020

In 2020, the UK and Europe experienced a particularly cold winter that meant an increased demand for gas to heat home. Usually, Europe and the UK keep reserves of gas stored up for such events so that customers can have gas supplied to their homes, and that prices remain relatively stable.

However, the UK and Europe did not sufficiently restock these shortage facilities during the summer, and we're left with a shortage of gas for the winter months of 2021. As a result, the shortage has made us more reliant on imports.

Worried about paying the bills this winter? There are many governments offered to help deal with energy costs in the winter months. Check to see if you can apply for the Cold Weather Payment.

Problems With The Nord Stream 2 Pipeline

Nord Stream 2 is a system of pipelines which allows gas to be transported from Russia to Europe and the UK. It is operated by the Russian energy company Gazprom, and is the biggest supplier of gas to Europe and the UK.

There has been lots of controversy surrounding Nord Stream 2 due to political and environmental implications on the European energy sector. In November 2021, German regulators suspended the approval process for the pipeline holding up the process.

Higher Demand For Gas In Asia

There has been an increase in the demand for gas in Asia that has also pushed up the wholesale prices. During the summer of 2021, Europe and the UK lost out on US gas to Asian bidders. This has increased reliance on the Nord Stream 2 pipeline.

Why Are UK Energy Suppliers Going Bust?

Although this has been a global crisis, the UK energy market is having a uniquely bad time of it. UK energy companies have been increasingly going bust due to the rising prices, but this has not been matched by any other nation’s market. So what’s going on?

The UK’s Deregulated Energy Market

The UK has one of the most deregulated energy markets in the world. This makes it very easy to join the market as a competitor. In 2017, the UK saw a surge in small providers who were deemed as the “challenger companies” to the Big Six. This has allowed for the UK energy providers to offer a broad range of different tariffs, deals, and prices to try and attract more customers.

The flipside to this freer market, however, is that companies can charge extremely low prices in order to stay competitive. While offering lower prices on gas and electricity, they become less sustainable when a crisis hits. This means energy suppliers cannot afford to support themselves when prices rise and, as a consequence, they go bust.

Larger suppliers such as British Gas and EDF generate their own energy, so are less reliant on the wholesale costs.

What Happens When An Energy Supplier Goes Bust?

magnifying glass

When an energy supplier goes bust, the energy regulator Ofgem transfers the customer base to a competitor supplier. This is known as Supplier of Last Resort (SoLR), and has been used by Ofgem a number of times this year to appoint new suppliers to take on the failed company’s customers.

For example, when Avro Energy went bust in September, Ofgem appointed Octopus Energy as the SoLR.

If you are a customer whose energy supplier has gone bust and is being taken over by another supplier, you don’t have to do anything. The entire transfer will be handled between the energy companies themselves and your gas and electricity supply will continue to work as normal.

All you have to do is wait until the switchover has completed before looking for another energy provider.

What’s The Problem With SoLR?

Under normal circumstances, when an energy supplier goes bust due to financial problems, SoLR can help keep stability in the market so that customers can carry on as usual without any interruptions to their gas or electricity supply.

However, if lots of energy suppliers are going bust at once, this can put a strain on the bigger companies to take on more customers. This means that if a company with a large customer base goes bust, Ofgem cannot appoint a SoLR.

So What Happened With Bulb Energy?

This is exactly what happened with Bulb Energy’s collapse. Bulb Energy had 1.7 million customers which was too large for any single energy provider to take on at once, and so the government had to step in to provide loans and grants to Bulb to keep it afloat. This is known as a Special Administration Regime (SAR).

In time, it’s likely Bulb Energy customers will be transferred to a new supplier. But for the time being, customers will continue to be supplied and billed by Bulb Energy.

What’s Next For The UK’s Energy Market?

Even in the light of Orbit Energy and Entice Energy going bust, adding another two to the growing list of failures, it’s still unclear where the UK’s energy market will go from here. There are a number of issues which need to be addressed in order to prevent serial closures from happening again.

It is possible that the UK may move to have tighter regulation on its energy market, limiting the number of suppliers who can enter in order to prevent new companies from charging too little. It might also be the case that the UK might have to change the way tariffs are sold to customers to adapt to world markets.

Whatever happens, you can be rest assured that, if you are an affected customer, your gas and electricity supplies will still continue to run and you won’t get cut off.

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