28 companies involved in the supply of electricity have gone bust since the start of 2018, according to official data obtained by Price Bailey, the Top 30 accountants.
According to data obtained from the Insolvency Service under the Freedom of Information Act, a record 19 businesses engaged in the supply of electricity went under in 2018 and a further nine in the first half of 2019.
These businesses are involved in the sale of electricity, including to thousands of households in the UK. Other than businesses engaged directly in the sale of electricity to the user, these figures include businesses lower in the supply chain, such as electric power brokers or agents that arrange the sale of electricity via power distribution systems operated by others and operators of electricity and transmission capacity exchanges for electric power.
Price Bailey says that while the challenges of businesses supplying electricity directly to UK households have received significant attention, the turmoil lower down the supply chain among businesses who are creditors of those retail businesses, has been largely overlooked. The insolvency of energy retail businesses is having a knock-on effect that is reverberating among businesses engaged in the wholesale trade of electricity, sending increasing numbers to the wall.
Paul Pittman, Partner at Price Bailey, comments: “The collapse of retail energy suppliers is sending shockwaves through the supply chain, pushing suppliers to those businesses into insolvency. These figures lay bare the scale of the problem and show that the most high-profile insolvencies in the energy sector are just the tip of the iceberg.”
“There is a ripple effect. For every new entrant supplier that goes bust, the strain on the rest of the supply chain increases, making those businesses more vulnerable to collapse. When an electricity retailer goes bust, they often owe money to suppliers, which means that a single insolvency can potentially push multiple wholesalers into financial difficulty, or even collapse.”
He adds: “As the financial fallout further down the supply chain worsens, many of those suppliers are likely to respond by hiking their wholesale prices, which piles further pressure on the energy retailers. It becomes a vicious circle.”
According to Price Bailey, small energy retailers are being squeezed by rising wholesale costs, the energy price cap and their renewable power obligations. The renewable power obligations are particularly onerous because if one supplier collapses, the cost of their unmet obligations is distributed across the rest of the market, thereby leading to higher costs and a greater risk of further bankruptcies.
Paul Pittman explains: “There is a strong case for reform of the renewables obligation schemes administered by Ofgem. The schemes are frequently in shortfall to the tune of tens of millions of pounds and, when a supplier cannot meet its obligations, that cost is passed on to other suppliers. At a time when many energy suppliers are struggling, being forced to pay the debts of suppliers which have collapsed undermines the foundations of the whole system.”
He adds: “The energy price cap set by Ofgem is particularly challenging for smaller suppliers who struggle to benefit from the economies of scale of the Big Six energy companies. It is ultimately not in the interests of consumers if choice is restricted through providers leaving the market.”
Total new company insolvencies in the supply of electricity
About Price Bailey
Price Bailey is a top 30 accountancy practice specialising in providing accountancy, tax and business advice to enable the growth of regional, national and international businesses. In addition to traditional accounting services, the firm has a range of specialists in many areas which combine to provide a complete, integrated business offering. These include tax consultancy, corporate finance, strategic planning, insolvency & recovery and employment law.
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