As the FT has noted this morning:
UK ministers will put up £1.7bn of taxpayers' money to continue running the failed energy supplier Bulb while it is managed by administrators on the government's behalf over the winter.
Bulb, which was Britain's seventh-biggest supplier, with 1.6m customers, admitted this week that it was supporting the process of being placed into “special administration”, a mechanism to protect customers of a large supplier when it becomes insolvent.
I have already analysed the last available accounts of Bulb. They are not pretty. But, to suggest that they required a capital injection of £1.7bn seems far-fetched, based on what is available on public record.
To put this in context, that level of support amounts to £1062.50 per customer on the basis of the above data, or about half a year's energy bills for each of them given current prices.
If the government imposed price cap is having that much of an impact then that needs to be stated and the implications for the rest of the market must be spelt out as well.
If that price cap is not the cause for this support, then the justification for the number needs to be given. As it is this number makes no sense at all, and it is time ministers said why this is their estimate.
And if support of this scale is required because of the impact of the price cap at a time when wholesale prices remain high, but below their peak, then the obvious implication is that there will be no domestic energy supply companies left in the UK soon because of the losses they must all be sustaining and in that case we face the scenario of a totally failed market rather sooner than I anticipated.
Why does this matter? The reason is that Bulb was 6% of the UK energy market. If the rest of the market needs support at something like the same rate because of the implication of the price cap this might suggest a cost of £28 billion. And that should be enough to wake up any minister.
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I suspect you are right Richard. Bulb is certainly the first failing company I have been a customer of in the past, and several of my friends and family are customers. If allowed to collapse, all of those 1.6m people will need to move to another supplier and they will potentially be angry with the government when every other energy deal is the same price as the expensive one they got moved to against their will. Doesn’t send a good signal about energy “markets”.
How long before they are forced to nationalise?
It does seem a lot per customer. Are existing Bulb customers having their tariffs honoured or are they now paying the capped price?
Maybe, rather than nationalising other energy suppliers the government should just use Bulb as the National Energy Company. If they offered good prices/service customers would migrate and existing players might just want to shut shop. Nationalisation without all the aggro of deciding how much to compensate existing shareholders of other suppliers.
I’m with Bulb – we inherited them when we moved in to our new house three years or so ago. (I liked the green energy angle, and had got thoroughly annoyed with Eon in the rented house we’d moved from).
Bulb didn’t really do deals, just had a tariff which would be slightly discounted for direct debit payments vs a prepaid meter etc. Prices did vary over time, but the most recent increase (from 1 October) left Electricity at just under 0.7p below the cap, and Gas at just 0.012p below, both per KW hour.
I’m very concerned that the level of government support implies that wholesale prices are only going in one direction between now and the next review, and that certainly won’t be down.
The market for electricity operates on the wholesale side using marginal pricing. This means that with gas @ around Euro80/MWh wholesale prices tend to be north of £150/MW. The retail market by contrast has a cap on elec (& gas prices).
Just completed research on elec in Denmark (using ENTSO-E data). This compared the current marginal pricing regime with a basket approach to wholesale pricing of elec. The latter delivers price stability (much lower wholesale prices) – even when gas goes up. Retail and wholesale prices don’t get much out of synch in such an approach.
As one of my contacts noted, price instability is good if you are a trader – you like instability. If you are vertically integrated (generators & retail operation), you can shrug off the reality of out of synch markets – swings – make money on wholesale, roundabouts – lose on retail – all comes out in the wash.
Fears of no retail players is a bit unfounded: will there be so many? No. There will be a market clear out. Will this cause lots of discomfort amongst the Uk population? Of course – but the UK population (serfs?) have never counted in what passes for gov calculations and, given past voting patterns, never will. These comments apply as much to the current rabble as it does to Labour under Keith.
Where will the £1.7bn go? To the players on the wholesale market. Think of it as an early Yuletide prezzie or cherry on the top of the cake. All this is an outcome that is entirely predictable and built into neo-liberalism, it is part of the design.
Agreed
Do you, by the way, know the current wholesale cost of supplying gas and electricity to a capped customer?
I can give you the elec price for 8th Nov (ENTSO-E don’t have later prices – perhaps the Brits are too embarassed?):
0500hrs: Euro129/MWh
1800hrs: Euro248/MWh
Keep in mind the energy-only content of Uk elec prices is perhaps Euro90 – Euro100/MWh. So you can see that if you don’t own generation you will be taken to the cleaners. Been there before, British Nuclear Energy was destroyed in the 1990s (pieces picked up by the French state – aka EdF) because they were generator-only – no retail. Collapse in wholesale prices – led to their demise & a quasi free gift to assorted non-UK companies. Tories, you can always trust them to legislate such that non-UK companies benefit.
Gas has European wide pricing – it has been all over the place – now sitting @ arounf Euro80ish/MWh.
Hope this helps.
Thanks
I am a customer of Good Energy which boasts they are 100% renewable sourced and reassure customers they are not going broke, but after your comments, I am rather nervous to say the least.
Likewise, Bill, but not yet nervous. As their CEO pointed out Bulb “bought” scale by offering cheap prices but without hedging the market – a not uncommon practice, I believe.
But a further point is that we don’t need just any old National Energy Co. we need a National Energy Co. which is genuinely green (like Good Energy) and doesn’t fiddle their credentials with greenwashing eg buying REGO certificates and saying in the small print “wherever possible”.
Good Energy CEO had a blog on Bulb a few months ago: https://www.goodenergy.co.uk/blog/2021/06/09/when-bulb-claims-to-supply-renewable-electricity-wherever-possible-it-means-just-4-of-the-time/
I was a customer of Eon but, on the advice of the sainted Martin Lewis, changed a few months ago to Igloo, who seemed to tick all the ethical boxes and charge reasonably. Not long afterwards Igloo went bust and I’ve been transferred to Eon Next (not sure what relationship it has to Eon) At the moment all their communications are very welcoming and encouraging and my direct debit hasn’t increased by an enormous amount. However I can’t help anticipating sudden hefty price rises very soon – or maybe they’ll go bust too.
I’m quite proud when I think back to myself in the 1980s when doing various temp jobs for the Manpower Agency. They handled a lot of the privatisation work for BT, gas and electricity, but I always refused to consider it because I didn’t believe in what was going on. I was called a lot of names, “Marxist dinosaur” being one I remember. There was such a general acceptance that competition would bring nothing but benefits to all.
I have to say that I am struggling with this whole issue. If I am getting this right Bulb does not generate or distribute the energy. They don’t own any infrastructure, apart from their own offices, and therefore don’t invest in any of the existing infrastructure (?). What is happening here is simply retail sales based on the commodification of energy and therefore any competition within the energy market has to be based on very risky undercutting or price capping when the base cost of a unit of energy is not controlled by the retailer but by the generator. I had a Saturday job, as a young teenager, in a village hardware shop. Customers would regularly complain that the cost of a tin of paint there was far too high compared to the superstore in the nearest town. The truth was that the owner of the hardware shop had to pay more, as trade, for the paint that the price the superstore was selling at retail. At the time the superstore was selling the paint for less than it cost them to buy it in order to gain market share. Shitty tactics but concidering the 1000s of other lines on sale they could afford it. If Bulb and the rest have been trying this, or have fallen into it due to increases in the ‘trade’ price, they haven’t other lines to fall back on. If simply having a large customer base (without profits) is enough to secure very large loans and bailouts perhaps the game has never been to sell on energy?
Either way I would prefer energy provision to be free from commodity brokers, resellers and profiteers.
I agree with your conclusion
Could there be another explanation viz a viz – some Tory chums are involved?
I too am a Blub customer. We are almost always ‘in credit’ on our bill, and always seem to be charged more than we use, despite the fact that we have been fairly successful at keeping our energy bills low. If I change the DD amount using the system it seems to have a mysterious way of recalibrating itself to the previous amount. Periodically I ask for money back and am warned that I risk not having enough in my account to cover the next bill. This never happens. I’ll have some of that £1.6 Billion thanks very much.
I was an avro customer, now with octopus, though things are moving slowly. Avro have over 700 quid of my money since September, octopus have had nothing. On advice I left my avro DD in place but having hit over 700 I decided to cancel it and wait for octopus to ask for a new one. How can octopus continue without the income from avro customers , surely they are paying out for energy they aren’t yet charging for? What happens when more suppliers of last resort go bust?
It will happen…..
There is just over 4 months for current price cap to run.That implies £250 / month / customer.
I cannot speak for your figures.
Why is no-one questioning the price cap?
How is it realistic to expect renewables to (a) replace fossil-fuelled electricity, (b) replace gas and oil heating, and (c) provide energy for all the electric cars we should be driving, without using the price mechanism to persuade us all to use less energy?
Jane King and the late Malcolm Slesser wrote `Not by money alone: economics as nature intended’ 20 years ago, arguing that we should concentrate taxes on energy because energy is the foundation of our economy and wealth; with a basic allowance for each individual to protect poorer people from fuel poverty.
We need the price of energy to go up, initially to speed up phasing out of carbon sources, but almost certainly also in the long run to keep our energy demands within sustainable limits.
[…] all this, the two blogs I had written on Bulb got noticed by journalists, with the accounting analysis attracting special […]
If they put a price cap on groceries and the supermarkets were selling at a loss they would all go bankrupt. Firms survive by making a profit. A cap is a nonsense.Tories are afraid of losing support.