Energy supplies struggling to survive in the crisis have to pay back £17.9 million

Energy suppliers have been hit hard by the energy crisis and many of them have not been able to sustain their business, while others are barely still running. Energy experts believe that the UK might be left with only 10 providers if the crisis continues and the market is not stabilised. Additionally, the energy watchdog Ofgem has issued two suppliers with final orders and five suppliers with provisional orders for a total sum of over £17.9 million of outstanding Renewables Obligation (RO) payments.

What is the Renewables Obligation (RO)?

ROCs are certificates issued to operators of accredited renewable generating stations for the eligible renewable electricity they generate. The Renewables Obligation (RO) is one of the main support mechanisms for large-scale renewable electricity projects in the UK. It came into effect in 2002 in England, Scotland and Whales followed by Northern Ireland in 2005. It places an obligation on the electricity suppliers to source an increasing percentage of the electricity they supply from renewable sources.

Why do the suppliers need to pay back £17.9 million?

When suppliers do not present a sufficient number of ROCs within the reporting period, which is one year, to meet their obligations, they must pay an equivalent amount into a buy-out fund. Part of this money goes towards paying off the administration costs of the scheme, while the rest goes back to other suppliers in proportion to how many ROC’s they used in the given period.

The five suppliers have been issued provisional orders are Delta Gas and Power, Entice Energy, MA Energy, Neon Reef and Together Energy. All of them failed to pay into the buy-out fund or present the required number of Renewables Obligation Certificates (ROCs) by the initial deadline dates of 31 August and 1 September 2021.

Entice Energy owes £173,923.75, Whoop Energy owes £56,306.25, Ampower owes £3,590,236.65, Delta Gas and Power owes £381,030.65, MA Energy owes £941,835.25, Neon Reef owes £349,148.80 and Together Energy owes £12,402,390.00.

Why are they unable to pay?

Many suppliers have not been paying their ROC’s and the reason most likely being financial issues. Some of the suppliers that received the orders have already gone bust due to the energy market crisis. The main reason for the crisis is that wholesale prices of gas have increased by 250% since January, and by 70% since August.

All energy suppliers that already went bust are:

Hub Energy: in August, HUB Energy was first to announce that they are being ceased. Ofgem appointed E.ON to take on the 6,000 domestic and 9,000 non-domestic customers.

MoneyPlus Energy and PFP Energy: in the beginning of September, MoneyPlus Energy and PFP Energy also went bust, leaving 9 000 and 87 600 customers, respectively.

Utility Point and People’s Energy: this trend was followed by Utility Point and People’s Energy. Customers of People’s Energy will be moved to British Gas, while Utility Point’s customers are being switched to EDF.

Avro energy and Green: the two providers accounted for 3% of the energy supply. Avro Energy had more than 580 000 customers and Green was a provider for 255 000 domestic customers. Octopus Energy was appointed to take over the customers of Avro, while Shell Energy will supply the customers of Green.

Igloo Energy, ENSTROGA and Symbio Energy: they are the latest suppliers to go bust on the 29th of September. Together, the three suppliers accounted for less than 1% of the total energy supply in the UK. E.ON was appointed to take on the customers of the three suppliers.

Colorado Energy, Daligas, GOTO Energy and Pure Planet went bust too and Shell Energy was appointed to supply their customers.

Bluegreen, Omni Energy, MA Energy, Zebra Power and Ampoweruk are the latest suppliers to go bust at the start of November. The energy watchdog Ofgem will soon move the affected customers to a new energy provider.

Smaller energy providers are hit harder by the energy market crisis and more of them are expected to go bust in the coming days. It is extremely hard for them to cope with the increasing and record high wholesale gas prices. Although bigger suppliers are more protected and have higher chances of surviving, they are also going through a hard period. They have to take on the customers of failing suppliers and be able to cover the energy for them.

What is Ofgem doing to help the suppliers?
In an open letter published last week, Ofgem laid out its plans to improve monitoring, compliance and enforcement of licence conditions to ensure suppliers pursue more sustainable business models in the future. There are also plans to consult on the methodology of the price cap to ensure that it appropriately reflects the costs, risks and uncertainties facing energy suppliers.

Why is Ofgem taking this “bold action”?
Ofgem has taken this action in the hopes of stopping further closures of energy providers due to suppliers being unable to afford rising supply costs. Currently the circumstances surrounding the rising cost of producing enough energy to meet demands has put many suppliers in an uncertain position with regards to their future. This situation is further intensified by the expected continuation of rising production costs throughout the coming winter. With this in mind Ofgem has called this meeting in an attempt to ease the strain on providers and further regulate energy providers to insure more sustainable business models in the future “in order to protect the short and long term interests of consumers” according to their website.

How is the energy price cap affecting the energy suppliers?
As of now many energy suppliers are struggling to avoid closure with the current limit on consumer energy costs in place. Rising wholesale costs means that these previously profitable companies are incurring major and unsustainable losses while supplying their current customer base. In large part due to the unsustainable business models these companies were built on which Ofgem now seeks to rectify in the upcoming meeting.

How is the measure going to help the energy suppliers?
If energy suppliers are successful in having the price cap risen then this will ease the current financial strain they are experiencing. It won’t be without some repercussions for many suppliers though, with Ofgem believing that many supplier issues have been caused by flawed business models that do not place enough importance on the amount of reserve capital held by the supplier. As a result of this far tighter regulations on energy providers can be expected moving forward.