Households could end up funding £2.4bn of payments to energy suppliers that took on the customers of rivals that collapsed as a result of sky-high gas prices, the energy watchdog has told MPs, as it warned a second wave of failures could be on the horizon.
In evidence to the business, energy and industrial strategy (BEIS) select committee, Ofgem detailed the costs associated with the “supplier of last resort” system, under which customers of an energy supplier that collapses are transferred to a healthier utility company.
Since the start of last year, 30 energy suppliers have gone bust, affecting nearly 4.5 million customers, with a sharp increase gas prices in early winter leading to a spate of failures.
Suppliers of last resort that took on those customers, such as Octopus Energy and Shell, have had to buy more energy on wholesale markets and can charge the cost of that to local gas and electricity distribution networks from April.
Those grid operators, in turn, will add the extra cost to what they charge suppliers for use of their systems. That means the money will eventually be added to household energy bills, which are predicted to soar to £3,000 a year or more, exacerbated by Russia’s invasion of Ukraine.
Ofgem said: “While it is still subject to significant uncertainty, our current estimate for total claims is approximately £2.2bn-£2.4bn.”
The figure does not include costs associated with the collapse of Bulb, whose operations were taken into government control under the “special administration” regime, rather than being transferred to another operator. The consultancy firm Teneo was appointed to take over its affairs.
It also warned MPs to brace for renewed chaos in the energy markets – potentially leading to another
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