30 Aug 0
Small energy companies risk going out of business which will see thousands of business and domestic customers be forced to move to the supplier appointed by Ofgem. The energy industry is going through a period of consolidation following the significant rise in the number of energy suppliers, from 12 to 70, since 2010. In total, 14 suppliers have crashed out of the market since the start of 2018. When a supplier ceases to trade, Ofgem appoints a supplier to ensure continuation of supply but negotiated contracts are not honoured leaving supplies out of contract and on deemed rates for the transition period.
Renewable energy subsidies, collected via the energy bills, are causing financial difficulties for the less secure suppliers when the annual deadline for payment to Ofgem comes around. Suppliers are due to pass on millions of pounds’ worth of renewable energy subsidies, collected via energy bills, to the energy regulator, Ofgem, by the end of October at the latest. This deadline has in the past proved fatal for financially unstable energy suppliers, and it is feared that a string of collapses may follow in the coming months. Last year over 30 suppliers didn’t pay what they owed, and this year market conditions are even tougher.
The regulator appointed EDF Energy to take on Solarplicity’s customers but industry sources fear that the bailout will raise costs for the rest of the industry. Solarplicity’s customers were owed over £3.5m in outstanding credit balances when the company went under. The sums will be paid for by other suppliers in the market, and ultimately reclaimed through energy bills. Solarplicity collapsed less than two weeks after it sold off around 43,000 customers to rival newcomer Toto Energy. The timing of the sale, and high level of outstanding credit balances among its remaining customers, raised suspicions in the industry that the company sold off its valuable customers and left its debts for Ofgem to cover. A number of suppliers have raised concerns with Ofgem on how costs of insolvent companies are being managed as it is inevitable that the costs will be passed on to consumers in the industry. The need for robust due diligence when selecting an energy supplier is of paramount importance to protect from the risks associated with situations similar to that of Solarplicity’s customers.