Why do energy firms keep going out of business?

Bulb expected to become 15th energy supplier to go bust amid unprecedented gas prices

Bulb is expected to become the fifteenth energy supplier to go bust in recent months (Getty Images/iStockphoto)

Bulb is expected to become the latest casualty of the energy supply crisis which has seen gas prices soar to unprecedented levels.

The company - which is the UK’s seventh-largest energy supplier - is said to be on the brink of collapse and could reportedly cease trading as soon as next week.

If it were to fold, it would mark the fifteenth supplier to go bust in recent weeks as the crisis deepens due to rising wholesale prices.

So why are energy firms going out of business?

Suppliers have been hit by a huge increase in wholesale gas prices this year, which they have been unable to pass on in full to customers who are on fixed-rate tariffs or are covered by the energy price cap.

When customers are on fixed-rate agreements, companies expect the cost of gas to go up and down. However, the sustained high gas prices have meant many customers are currently paying less for their energy than it costs the supplier to buy.

Smaller companies have suffered the most, with HUB Energy, PfP Energy, MoneyPlus Energy, Utility Point, People’s Energy, Green, Avro Energy, Enstroga, Igloo, Symbio, Colorado Energy, Pure Planet, Daligas and GOTO Energy all having gone bust in recent weeks.

The cost of gas is usually higher at this time of year as people turn on their heating and lights more, however the reopening of the economy following the Covid-19 pandemic has seen an even higher demand this year.

The rise in gas prices has also been blamed on other problems including less supply coming from Russia recently, high demand in Asia, and the closure of several gas platforms in the North Sea to carry out maintenance work halted during the pandemic.

What happens if my supplier goes under?

Don’t worry, you won’t be cut off or lose any money held in your account.

When a supplier goes bust, Ofgem appoints a new company to take over its customers.

This would see Ofgem and the government forced to trigger the Special Administration Regime, under which external administrators are brought in to run a supplier and ensure uninterrupted services for customers while new arrangements are sought.

This gives customers certainty that they can continue to use their gas and electricity as usual. However, it is often an expensive process for the chosen new supplier.