Energy UK, the trade body for the energy retail sector, said on 2 February 2022 that 27 energy retail companies have exited the market since August 2021, and that almost 2.3 million households have seen their supplier fail1. The costs of the supplier of last resort process are reported to be around £2.6 billion to date and are likely to increase, Energy UK said, adding that these costs will ultimately be picked up by customers1.
The body attributed the exits to record spikes in the global wholesale price of gas, and said wholesale gas prices had risen by more than 500% in just over a year1. It said the current price cap was set in August, before the recent increases in wholesale costs, and does not reflect the actual costs suppliers are facing1. Roughly 80% of the costs in an energy bill are outside a supplier's direct control, with wholesale costs by far the biggest component at around 40%, according to the body1.
Energy UK said customers on standard variable, or default, tariffs are likely to face a 50% increase in their bills when the next price cap comes into force in April, which it put at an extra £600 to £700 a year for households with typical usage1. It also said the UK is particularly reliant on imported gas, using it to heat over 80% of homes and to generate around 40% of electricity1.
"27 energy retail companies exiting the market since August 2021, almost 2.3 million households have seen their supplier fail."
The body said energy retail companies supply heat, light and power to 28 million homes as well as every business in the country1. It said industry and consumer groups have called on Ofgem and the Government to improve regulation for many years, including ensuring companies are financially viable before they enter the market and acting more quickly when rules are broken1. It added that unprecedented global prices mean well run companies have also gone out of business1.
Why it matters for households
When a supplier fails, its customers are moved to a new supplier through the supplier of last resort process, so supply continues, but the terms and the price a household ends up on are not chosen by the household. Energy UK states that the costs of that process, around £2.6 billion to date, will ultimately be picked up by customers1. For a home's energy independence, the practical effect is that the supplier named on the bill can change without the household deciding to switch, and the tariff that follows may differ from the one previously held. The number of companies competing for customers has fallen sharply, which bears on the choice available to households considering a switch. Energy UK's figures on the scale of switching and the supplier landscape are set out in Energy Switching and Supplier Market Statistics, and the position of the smaller companies that have entered and left the market is covered in Challenger and Small Energy Suppliers in the UK. For households whose supplier has failed, the process and the routes for complaint are described in Complaining About an Energy Supplier: The Process and the Ombudsman.
What happens next
The next price cap comes into force in April 2022, according to Energy UK, which said customers are likely to face a 50% increase in their bills at that point1. Energy UK said that if Government does not act by April, the impact of the cost-of-living crisis will be felt by the vast majority of households1. It said Government is considering a suite of options to support people in paying their energy bills when the price cap is increased, and set out what it wants that action to deliver, including fair prices for customers and support for people in vulnerable circumstances1. A review of the retail market and work on strengthening regulation were already under way at the time of publication1.