The record high in wholesale global gas prices has led to the failure of some smaller UK energy companies – 10 in the last few months – with more predicted to follow. Wholesale prices have increased 250% since January 2021 due to a combination of factors including an increase in global demand as economies reopen after COVID lockdowns.
Energy price cap
Ofgem – the independent energy regulator – limits the amount that energy retailers can charge consumers causing difficulties for those retailers in current circumstances where wholesale prices far exceed that price cap.
Supplier of last resort
When an energy supplier fails, Ofgem appoints a "supplier of last resort" (SoLR) to supply the insolvent supplier’s customers following which the energy retailer enters administration in the normal way. SoLRs cannot charge transferring customers more than the energy price cap and must take on any credit balances.
Government intervention
The government has been in crisis talks with Ofgem and the Treasury regarding possible support measures for the energy sector although this appears to have been ruled out for the time being. That said, given the current volatile market, most customer contracts will be loss making for SoLRs putting them under an additional level of financial pressure. This may necessitate government intervention or possibly the use of the energy supply company administration order, a special administration regime for large energy supply companies which has, to date, never been used.
Here to help
Please reach out to a member of our Restructuring & Insolvency team if you'd like to discuss the issues raised in this article in more detail.
