Customers can buy natural gas and electricity for homes directly from large suppliers or smaller ones who purchase from the wholesale market and sell it on. As of mid-January, 25 U.K. domestic energy suppliers had gone out of business since August, forcing about 4 million homes to switch providers. The most significant failure so far was Bulb Energy Ltd. with 1.7 million customers, the country’s seventh-largest supplier.
The system works fine in normal conditions but has been breaking down under pressure from sky-high prices caused by supply disruptions in Europe. Domestic fuel bills look set for large increases in 2022, even with price caps to protect households.
A special administrator was appointed by a judge — the first of its kind in the energy sector. In this process, the costs of running Bulb will be supported by the Treasury, the first forced nationalization of a British company since the 2008 banking crisis.
The government of Prime Minister Boris Johnson, whose Conservative party faces local elections in May, is considering a fund to help energy firms spread out price increases for customers over a longer period of time, and they could surge another 50% in April, according to Investec Bank Plc.
Rising bills were pushing up inflation, which hit 5.4% in December, the highest since 1992. Smaller suppliers can undercut rivals when wholesale prices drop below the levels paid in advance by larger companies. When those prices soar, smaller companies are squeezed.
It could use private or state-backed loans, or a mechanism in which the government makes payments to energy suppliers when wholesale gas prices rise sharply, and companies reimburse the state when prices fall below an agreed level, the Financial Times reported in January.