Although supplier failures were driven by significant increases in wholesale energy prices, with the cost of gas rising six-fold from February to December last year, the NAO’s latest report says failings by energy regulator Ofgem in licensing and monitoring suppliers ‘increased the risk and cost’ of energy suppliers collapsing. The figures exclude costs associated with the closure of Bulb Energy, the largest supplier to go to the wall in 2021, which is being dealt with through a separate government process that is so far expected to cost taxpayers £1.9bn.

Since 2019 there has been a 78% increase in the bill of a typical customer buying energy at the price cap to £1,971/y. According to the NAO, Ofgem did not consider what impact the price cap might have if there were sustained periods of price increases in the wholesale energy market. Nearly 2.4mn customers have had to transfer supplier following the collapse of 28 energy suppliers.

The estimated £2.7bn costs will be distributed across all energy bills, says the NAO, rather than just the customers of failed suppliers, equating to around £94 per customer.

Ofgem is now tightening the rules for suppliers to improve their financial resilience to ensure that risks are not passed on inappropriately to consumers. It is also seeking additional resources from HM Treasury and new powers to enable it to take a more proactive approach to monitoring and responding to issues of financial resilience.

However, the NAO warns that ‘there is a risk that Ofgem’s changes could hinder effective competition’. It recommends that the UK Department for Business, Energy and Industrial Strategy (BEIS) and Ofgem ‘should establish a process for considering how new interventions in the retail market, like the price cap, would react in a range of scenarios’. In addition, it says: ‘Ofgem should define a set of objectives for its regulation of the retail market around price, stability and innovation, against which it should review and report its performance at least annually.’

Commenting on the NAO report and Ofgem’s plans for new rules, Nigel Pocklington, CEO of renewable energy supplier Good Energy, says: ‘The strain of the cost-of-living crisis on energy bill payers is quite enough without the impact of supplier failure on top. This is an unprecedented energy crisis, the conditions that started last year have made it tough for suppliers, but there was a clear pattern of poor business practices long beforehand too…We [at Good Energy] have shown that it is possible to build a successful challenger energy business without cutting corners like many of the failed suppliers. Ofgem is taking action now, but at this point the suppliers still standing are generally well run – the stable doors are closing after the horses have bolted.’

Equinor agrees winter gas supplies with UK’s Centrica 
Meanwhile, in a bid to help shore up UK energy supplies, Equinor and Centrica have signed a new supply agreement that will provide further energy security for the UK over the coming three winters.

The new agreement adds around 1bn m³/y to Equinor’s existing, bilateral contract with Centrica, and brings the total volume under the contract above 10bn m³/y.

The UK currently imports around a third of its gas requirements from Norway. Some 20–22bn m³ are supplied by Equinor, meeting over 25% of UK gas demand.