In this week’s article, we explore the collapse of energy giant Bulb, asking why so many energy suppliers have gone into administration, what the wide-scale effects of these closures are and why it’s time to start managing energy better.

It’s been a tough year for Britain’s energy industry. Over the past few weeks, numerous headlines have arisen, warning that major energy supplier Bulb would be facing closure with an enormous deficit after it began searching for emergency investment in September. Following the closure of over 20 household suppliers “since the start of September”, this was a worrying though not entirely surprising suggestion. Sure enough, early last week, the company was indeed placed into administration. 

As the largest energy company to fold within the current energy crisis, Bulb’s collapse is an especially large blow to British taxpayers and the industry at large. In fact, the provider is “three times as large as Avro”, the second largest energy company to collapse in 2021. Despite talks with “Ovo, Octopus and Shell Energy providers, Bulb’s £600 million liabilities… coupled with a climate of rising gas prices” mean that the provider was unable to be saved by its competitors.

As a result, the 2015-founded Bulb has been placed under a special administration scheme costing tax-payers £1.7bn. This procedure was recently designed by Ofgem “to protect customers when large suppliers can no longer trade”, making Bulb the special administration’s first recipient. 

Why Did Bulb Collapse?

As previously stated, Bulb is the largest and most recent in a long line of energy providers to face extreme difficulties. So why exactly did it fail? What sort of issues cause a provider with 1.7 billion customers to close with £600 million of debt? 

A main cause of our current crisis -and Bulb’s subsequent closure- is wholesale gas prices, alongside other disruptions in the global gas supply chain and storage system. In fact, wholesale prices increased by 250% in the first part of 2021. One Telegraph article describes global gas prices as in the midst of a “global crunch”, driving “a six-fold rise in wholesale gas prices and knock-on effect on power prices.” 

The other disruptions include “delays to the approval of the Nord Stream 2 gas pipeline in Germany”, which has created further price hikes over the past month. The project is an ambitious infrastructure and one with several political and administrative implications. 

The Nord Stream, designed to increase the supply of gas between Russia and Germany, has been controversial given it’s circumvention of the Ukraine, which “relies on existing pipelines for income and would be hard-hit by the loss in transit fees.” Despite being finished since September, the 760 mile pipeline has had its approval by the German government delayed, officially until the project is compliant with all German laws. This, alongside strained, European gas storage facilities and “an especially cold winter” on the continent has all contributed to the rise in wholesale oil and gas prices. 

Another contributing factor to Bulb’s demise is Ofgem’s energy price gap. Although the cap is in place to protect consumers from unregulated and constant price increases, it also means that energy companies can face periods of loss as wholesale prices rise whilst consumer rates must be maintained until the next cap review. As Bulb’s £600 million debt stands to remind us, this disparity between consumer and wholesale prices can quickly create significant issues for even large providers that have hedged with long-term supply contracts and their own power stations. 

Lack of long-term contracts or a generation supply is indeed another key factor in the failure of smaller firms. According to economist Professor Dieter Helm CBE, the current “gas price shock was predictable.” He argues that it is the market’s “absence of longer-term contracts, little storage and overwhelming reliance on spot markets” (commodity trade for immediate delivery)” has caused ministers to be “asleep at the wheel” of a crisis. Dieter Helm elaborates, stating that supplier Gazprom’s “honouring of its contracted supplies and failure to add to spot market volumes highlights the difference between long-term contracts and short-term spot markets.” 

What Effects Will the Administration Have?

Bulb’s closure has had a number of effects, not least the enormous £1.7 billion bill footed by UK taxpayers. However, the administration scheme has certainly provided enormous benefits for Bulb customers, protecting them from all losses suffered by the company.

As part of it’s administration statement, Bulb reassured customers that it would support it’s “special administration” and “continue to operate with no interruption of service or supply to members.” The company reminds it’s customers that “if you’re a Bulb member, please don’t worry as your energy supply is secure and all credit balances are protected.” 

In a recent tweetstorm covered by Sun, Martin Lewis (founder of MoneySavingExpert.com) advises Bulb consumers and all those concerned about the state of the energy industry generally. He explains that the term “special” in the special administration plan is a key differentiator, and this particular scheme ensures the protection of customers “as well as creditors.” He also goes on to add: "in reality, for now, it's no change for customers…. You’ll stay on the price cap, there’s [nothing] meaningfully cheaper. Don’t switch or you may pay 30% more.”

As one Northumberland Gazette article states, moving forward, Bulb customers will be “contacted by a new supplier, who will be appointed by Ofgem, financial expert Kevin Mountford said”. As for it’s international businesses, Bulb will “continue to trade across France, Spain and the USA.”

However, many Brits will still suffer losses due to Bulb’s closure. The company is known to employ around 1000 people who now face redundancy. Fortunately, this worrisome outcome has been postponed initially, as many roles “will still be needed to carry on in their roles through the special administration process.”

Why is Energy Management More Important than Ever?

One article published in The Telegraph explains how, despite the special administration scheme’s consumer protection measures, energy customers will still end up paying for the energy crisis. It informs the public that “the act allows the Government to recoup costs the company cannot repay from the rest of the industry, which would mean a further hit to consumer bills at a time of rising prices.” In short, the causes behind supplier collapse -most notably the rise in wholesale gas prices- are not going away even if the scheme does protect Bulb customers in this instance. 

The multitude of companies taken into administration this year represents a crucial shift in our energy economy, and one of which consumers need to take note. Energy saving and energy management can no longer consist of simply switching suppliers or contracts. The entire industry is facing rising supply costs and the number of competitors to choose from is rapidly depleting, by 20 companies in 2021 alone. Many suppliers will now be fearing that they could meet the same fate as Bulb and as such, it is reasonable to expect that as and when the cap is raised, prices across the market will rise significantly in order to protect companies from debt and closure further down the line. In other words, we will likely be facing a case in which maximum limits become the standard pricing. 

So when will the cap be raised? According to Ofgem’s own website, the cap is set based on current reporting and it “will be up to the government to decide if the market is working well enough to lift the cap.” 20 closures in the last year would certainly suppose that the market is not “working well”, so an imminent cap review is certainly plausible.

If we cannot manage energy by simply switching suppliers, then what can we do? Firstly, energy efficiency is key. The more each unit of energy costs, the greater the savings achieved by switching off appliances when they are not needed and switching to energy efficient appliances such as newer fridges or LED light bulbs. 

Secondly, given that wholesale gas prices play such a large part in the fluctuation of global energy prices, relying more on Demand Side Response and low carbon tech is key to greater energy security for Britain’s businesses and homes. Afterall, renewable energy was declared the cheapest source of power earlier in 2021, something of a landmark in the clean energy transition. Using energy when renewable power is most abundant, integrating solar PV/heat pumps and reducing our reliance on oil and gas means we can become less dependent upon wholesale oil prices and the plethora of political and economical factors affecting them. 

For larger organisations, all of this provides a serious business case for hiring in-house energy managers or outsourcing to consultants. Ambitious sustainable targets and regulations for businesses in the wake of COP26 alongside the growth in energy prices means that your business will likely need more extensive energy management at some point. Why not start reaping the benefits now? To learn more about professional energy management and how it can help your business, visit GridDuck’s blog post: Energy Managers: What They Do and Why They Matter.

Whether you decide to take on professional energy management or simply want to employ better consumption habits yourself, one thing is clear: for the sake of the planet and our wallets, it’s time to rethink how we source and use energy.

If you’re worried about energy prices or would like to learn more about how to save, GridDuck is here to help. We are experts in reducing bills in commercial buildings and allowing businesses to become more sustainable. For a free, quick and no-obligation chat, arrange your appointment with Miles today.