Bulb, one of the UK’s largest energy suppliers, is in administration. What happens now?

Wholesale prices have risen precipitously, causing disruption in the energy market. Will household bills follow?

Bulb has become the latest – and largest – energy supplier to collapse into administration. The company, which supplies 1.7 million customers, is the 23rd British energy supplier to have collapsed since the beginning of August, as gas prices rose sharply.

What does that mean for its customers – and even if you’re not a customer, will your gas bills go up? Here’s what we know.

Why did Bulb go into administration?

Like many of the other energy providers that have ceased trading, Bulb was a casualty of a steep rise in wholesale prices. Last week, energy prices hit their second highest level in three years as a lack of wind around the UK forced the power grid to turn on gas-fired power plants.

Energy markets aren’t usually this volatile, but to protect consumers from being pushed onto higher tariffs the government introduced an energy price cap in 2019. This is set by the regulator, Ofgem, and currently limits the price for a default tariff to £1,277 per year for an average user. With gas prices spiking, some companies are being forced to pay more for the energy they buy wholesale than they’re allowed to charge customers for it.

Bulb was founded in 2015 and grew fast, powered by investors, attractive deals and a generous referral scheme. By this month, it had about six per cent of the UK’s energy market. But some have suggested this growth was precarious; Keith Anderson, chief executive of ScottishPower, commented the news had “been a long time coming”.

What will happen to Bulb customers?

Bulb is too large to be taken over by another company, so it is being placed into “special administration”, a process introduced in 2011 specifically in case a large energy provider became insolvent.

Customers of other energy suppliers that have gone into administration have been absorbed by rivals, but Bulb’s size means the government is taking over, with the power to provide guarantees, grants and loans to ensure supply is maintained.

Ultimately, it’s thought one or more rival suppliers will be interested in taking on its customers – although until then, says Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, “the taxpayer is likely to take the strain, so we might all end up paying a price”.

I’m not a Bulb customer – will my energy bills rise?

Not immediately, although it’s worth keeping an eye on your tariff. If you’re on a standard variable tariff (SVT), you are protected by Ofgem’s price cap, which limits how much energy providers can charge their customers to £1,277 per year for a typical household. Usually, an SVT would be more expensive than the fixed-price deals offered by energy providers, but yesterday the Financial Times reported that suppliers were offering fixed-price deals that were hundreds of pounds higher than the price cap.

Even if you are on an SVT, expect bills to rise in the longer term: Ofgem is due to review the price cap in April 2022. Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, believes households may be in for a shock.

“By my calculations, electricity and natural gas futures prices now point to around a 33 per cent increase in Ofgem’s default tariff price cap in April,” he tweeted yesterday. “That’s a lot of pain for low-income households coming down the tracks.”

It’s also worth emphasising that energy suppliers aren’t protected by the price cap – so expect more insolvencies as April approaches.

Why are gas prices rising?

The price of energy has soared in recent months as countries ended their lockdowns and demand, particularly from countries in Asia, began to increase. In the UK and across Europe, that factor is exacerbated by lower-than-average supplies of gas in storage after a cold winter last year and falling domestic production.

The UK has been particularly badly hit because it is one of Europe’s biggest users of natural gas – according to the 2019-20 English Housing Survey, 86 per cent of dwellings in the UK have gas central heating.

Why have some energy suppliers gone bust and others haven’t?

Most of the larger energy suppliers are well-hedged – they have agreed a price for their energy in advance. This is a gamble, because energy prices can fall as well as rise, so some may find themselves paying more than they need to if they’ve agreed a price in advance and prices suddenly drop. For the larger energy companies, however, it’s an insurance policy worth buying.

But many suppliers operate with very tight margins, and smaller companies have opted not to hedge – meaning that when prices began to rise, they faced an immediate rise in costs.

What happens if my energy company does go bust?

Customers of suppliers that go out of business are automatically transferred to another supplier chosen by Ofgem.

It’s good news because your supply won’t be interrupted – but you may be transferred to a “deemed” contract that is higher than your previous contract (because the supplier has to buy additional wholesale energy at the last minute when it takes on new customers) or an SVT, which may be higher if you were on a fixed-rate tariff with your previous supplier, and may rise in April when Ofgem reviews its prices.