Energy suppliers going bust seems to make the headlines at least once a year. Yorkshire Energy are the latest to go under leaving over 70,000 customers behind.
This isn’t a new problem, in 2019 alone 8 energy suppliers folded leaving nearly half a million customers wandering what happens next. The events of 2020 have seen 18 cease trading. The best advice is not to panic. Gas and electricity supply will continue to your home as normal. OFGEM, the sector regulator has set up a safety net to reduce the impact of collapsed companies on consumers. This is known as the Supplier of Last Resort (SoLR) and is a process that will transfer customers of the failed company to a new supplier
Will I be moved to a more expensive tariff?
Unfortunately, this is a possibility. You will not be able to choose your new tariff but OFGEM has pledged to negotiate the best deal possible. Even so, the new tariff, known as a ‘deemed’ tariff, may be more expensive than the one you had with the failed energy supplier. In these circumstances it is important to bear in mind that you have absolutely no obligation to stick with this new company. As soon as the switch has happened you are free to compare energy market deals to find a better supplier for your gas and electricity. If you are happy with the deemed contract, you are equally as free to keep it for as long as you like.
Will my smart meter be affected?
The newer models of smart meter should work across energy suppliers. However, this is not always the case. It is possible that your smart meter will no longer operate in ‘smart mode’ when you switch. Even if this is the case, your gas and electricity supplies will continue as normal.
I had credit with the collapsed provider, will I get it back?
Yes. The new supplier will contact you and provide details on how you can reclaim your credit.
I am in debt with the old supplier, does it still stand?
This will depend on the deal struck with the new supplier. Sometimes they will take on the debt which will mean that you will still be responsible for its payment. Even if they don’t, administrators may still hold you responsible for that debt.
Should I cancel my direct debit?
Cancelling your direct debit will not cause any problems. Your new supplier will be in touch to work out payment going forward.
What has gone wrong?
The reasons for energy companies collapsing are varied:
The Price Cap: Pushed forward by the Government in a bid to end what it saw as poor value for money, the price cap has made waves throughout the energy sector. The idea was to make sure that no tariff could charge unreasonable rates to consumers. In practice, things have not quite gone to plan. Almost as soon as a new price cap is introduced, a significant portion of the energy market is replacing cheap tariffs with alternatives closer to the cap. This has not helped competition and squeezed some smaller operators out of existence.
Fluctuating wholesale costs: The wholesale costs of energy will rise and fall in line with supply and demand. Looking at the price from January 2016 to January 2020 shows a small drop in the wholesale price (approx. £3). However, this does not tell the whole story. In between those dates the price has risen and fallen as much as £30 MWh. Because many energy suppliers will bulk buy energy to help fix tariffs, buying at the wrong time can have huge implications.
Government initiatives: Installing smart meters has been heralded as the future and to make things even better, installation is completely free! Of course, in reality, it is most certainly not free. While the consumer may not get an upfront fee to pay, the energy suppliers do need to fund this roll out. They can either choose to pass these costs on to customers via tariffs, or take the burden against profits. The first option risks losing a competitive edge and the second risks severely hurting company growth. Both can have the unintended impact of breaking a company beyond repair.
Poor Service: Not all of these companies have gone bust because of external factors outside of their control. Sometimes it comes down to good old fashioned customer service, or lack of. The age of the internet has allowed word of mouth to spread like never before.
Who benefits from an energy supplier’s collapse?
Unfortunately for market competition, the benefactors tend to be the big six energy companies. In the last two years alone, the big six have gained over a million customers between them due to smaller companies going bust. It is not clear exactly how many then remained with these companies and how many switched away, but in the long term this is not a good pattern as far as maintaining a competitive market is concerned.