Two energy suppliers collapsed on Wednesday as the worsening gas supply crisis now affects 1.5 million customers.
Avro Energy and Green have become the latest victims of a tripling in the wholesale price of natural gas, with regulators warning more companies to go bankrupt over the winter. Seven suppliers have already gone bankrupt in a matter of weeks.
Another midsize provider, Igloo, is said to be on the verge of collapse as administrators weigh insolvency options.
The latest corporate bankruptcies are expected to push up household bills again next year, at a time when the inflation rate is soaring and incomes are about to be squeezed by higher contributions. national insurance.
Millions of less well-off households will also see their incomes cut next month when universal credit payments are cut by £ 20 a week, while economists have warned of rising unemployment as the holiday scheme ends. next week.
The rapid scale of problems in the energy sector will test the arrangements in place to ensure that customers of bankrupt companies are transferred to new suppliers without disruption to their gas and electricity.
With 580,000 customers, Avro Energy is by far the largest company to go bankrupt so far, raising questions as to whether the “supplier of last resort” system can cope.
Kwasi Kwarteng, the business secretary, said the government would not bail out struggling energy companies, but ministers are considering state-guaranteed loans for companies that take additional customers from bankrupt suppliers.
Energy regulator Ofgem’s retail director, Neil Lawrence, has sought to reassure affected customers that they will not be the losers due to their supplier shutdown.
“Ofgem will choose a new supplier for you and while we are doing this our advice is to wait to appoint a new supplier and not change in the meantime,” he said. “You can rely on your energy supply normally. “
Labor accused the government of appeasement in its approach. Shadow Energy Minister Ed Miliband called on his counterpart to “get the truth” about the seriousness of the threat to suppliers and “recognize the economic hardships workers face.”
“It is becoming increasingly clear that the impact of soaring global gas prices on UK businesses and families is going to be severe, as major government failures mean our energy system is not resilient enough. “
Mr Kwarteng faced grilling in parliament on Wednesday, including questions about why the government allowed the Rough gas storage facility to shut down in 2017. The site accounted for 70 percent of the country’s storage capacity.
The business secretary said the problem was a “light red herring” because having more storage capacity does not change the world price of gas.
He also said preparations were underway to keep gas prices high for some time, although Boris Johnson called the problem “temporary”.
In announcing that he would cease operations, Green issued a very critical combative statement of the government. The company blamed its collapse on “unprecedented market conditions and regulatory failures” which it said had left small energy providers behind.
Green had strongly criticized the energy price cap, calling on ministers to review policy that has left suppliers selling electricity at a loss because they are unable to pass rising costs on to customers.
The company was among 15 small energy providers who wrote to Ofgem and government ministers this week demanding a review of the ‘outdated’ energy price cap rules and calling for an immediate package of financial support .
These calls were rejected by Mr Kwarteng who said the government would not bail out what he called poorly run businesses.
Green hit back at this characterization, saying he was concerned that small energy providers could be left behind by the government, with bailouts being put in place for large companies with privileged access to “talks”. private ”with the Minister.
Moments after Green’s announcement, Avro Energy became the seventh supplier to go out of business in recent weeks, with wholesale gas prices climbing to 250% of their January level.
The surge in demand as the world emerges from the pandemic has combined with a host of factors limiting supply.
An unusually cold winter in Europe left stocks low, while demand was strong in Asia. A lack of wind meant the UK was more dependent on gas than in previous years.
Meanwhile, Russia has supplied Europe with less gas in a move that many say is designed to exert power over EU countries by blocking the opening of the long-awaited Nord Stream 2 pipeline.
The latest failures of energy suppliers will add to consumer concerns at what is an “extremely troubling time,” said Gillian Cooper, energy policy manager for Citizens Advice.
Supplier collapses and skyrocketing energy prices, combined with the impending reduction in universal credit, create enormous uncertainty for millions of people.
“There are protections for energy customers. They will not lose their supply; their credit balances are protected; and price caps limit the cost of bills, ”Cooper said.
“The government and Ofgem must also ensure that no one will lose access to the Warm Home Discount when it is transferred to another supplier. And customers indebted to defaulting suppliers should continue to have access to affordable repayment plans. “
News of the collapse of Green and Avro Energy came shortly after the boss of Ofgem warned more energy providers would likely be forced to shut down.
“Take a look at how the price of gas is moving – it’s really something we don’t think we’ve seen before at this rate,” Jonathan Brearley told MPs on the Trade, Energy and Industry Strategy Committee.
He declined to give an estimate of the number of companies that could go bankrupt, but said: “We expect more. [suppliers] not being able to cope with the circumstances in which we find ourselves.
He added: “We expect a lot of customers to be affected, we’ve seen hundreds of thousands of customers affected already, it could well go way beyond that.
“It’s very difficult for me to put a number on that. “
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