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 / What happens if your business energy supplier goes bust?

What happens if your business energy supplier goes bust?

10 May 2022

|6 minutes

The current energy market and its potential impact on UK businesses has been dominating headlines for more than a year. With no easy resolution in sight, we look at the cause and effect of the challenges, what’s in place to protect your business and what you can do to choose a trustworthy business energy supplier.

The UK business energy market 

The situation currently facing the UK energy market lies in the recent rapid increase in wholesale energy prices. Costs skyrocketed throughout 2021 and achieved a record high in December. The increase hit all UK energy suppliers hard, but it was the smaller ones that suffered the most. According to industry group Oil & Gas UK, wholesale gas prices rose 250% from January to September, creating casualties across the energy market with 31 companies ceasing trade throughout 2021 and into 2022. The closure of these companies affected millions of energy consumers.

However, as serious as the situation sounds, there are robust methods in place to safeguard energy supply for customers in the event of a supplier failure.

Can your business get support from energy regulators in UK?

The UK energy regulator, Ofgem, has introduced processes to ensure your business isn’t without power or gas if your energy supplier goes bust. It’s Ofgem’s priority that customers have an uninterrupted energy supply and it has two avenues for action to ensure customers aren’t impacted by their supplier’s sudden closure: Supplier of Last Resort (SoLR) and the Special Administration Regime (SAR).

1. Supplier of Last Resort

    This is Ofgem’s primary method for ensuring a customer’s energy supply is not disrupted in the event of their supplier facing insolvency. The regulator appoints a new company based on its ability to supply new customers without disrupting supply to existing ones. The selection of a new supplier is a competitive process based on achieving the best possible result, however, the tariff price is likely to be much higher than the contract it replaces, which is why it is recommended that a new contract is negotiated at this point..

    If you find yourself in this position, Ofgem suggests three steps you should take to take to navigate through the change:

    • Take readings from each of your meters to make sure your final bill is correct.
    • Wait for your new supplier to be appointed. This should take up to a maximum of 14 days and there will be no disruption to your supply during this period.
    • Ask the new supplier about your business energy options when they contact you – at this stage you can also undertake a review of the market and consider switching to a different supplier that best suits your business’ energy requirements.

    It should also be noted that business energy customers could potentially lose their credit balances through the SoLR process as they aren’t currently protected. Ofgem has outlined that it will seek information on proposed steps for customers who hold credit balances with a failed supplier.

    2. Special Administration Regime

    SARs were established under the Energy Act 2011 as an alteration to the existing regime for licensed energy suppliers and protects energy customers in circumstances where the supplier is too large to go through the SOLR process.

    If the customer base of an energy supplier that encounters financial difficulty is too large to be transferred to another supplier, Ofgem or the Secretary of State can apply to Court for a special administration order to appoint a special administrator. The administrator is obliged to run the company in line with special administration requirements and operate in such a way that trade can continue normally, and energy is supplied at the lowest reasonable cost.

    Administration continues until the company is sold, rescued, or alternative suppliers are found for its customers. Support may also come from the UK government in the form of grants, loans or a guarantee.

    Why are UK energy companies going bust?

    The smaller energy suppliers who supplied both domestic and\or business customers were those that suffered the most throughout 2021 and into this year. The increased cost of wholesale gas meant that energy suppliers were paying more than they were charging their customers and if they hadn’t hedged (purchased energy in advance), they were exposed to significant volatility and risk within the wholesale market..

    As each company folded, larger energy companies took on the existing commercial and domestic energy supply points., These suppliers have the capacity to manage the supply demands of SMEs up to large business energy users.

    Selecting a new business energy supplier

    With over 30 energy suppliers ceasing to trade in the last 12 months, but a big selection remaining in the market, it’s important to perform in-depth reviews of the potential suppliers your business is considering partnering with for their energy. Before switching to any new supplier it’s always best to consider some of their credentials and policies – here’s a brief list of things to research to get you started:

     How strong is the suppliers’ credit rating?

    • This is an indicator of their potential to fare well in tough market conditions and could reduce the risk of the supplier going bust.

     Is it easy to switch?

    • It’s important to know the notice period to switch or end a contract with the supplier and whether the contract has a cooling-off period.

     Does the supplier align with your energy strategy?

    • To meet your business’ energy and sustainability goals you’ll need to find a supplier that can provide a suitable suite of solutions.
    • If your business experiences a sudden period of growth, having an energy professional available to adapt your buying and usage profile will make a big difference.

    How transparent are the supplier’s costs?

    • It is essential to know your energy tariffs and in addition having transparency of any additional costs such as meter maintenance and installation will determine whether the supplier will fall within your business energy budget.

    With so much choice available, it’s worth taking the time to check that the energy supplier your business partners with demonstrates that they will be a solid partner by considering the above characteristics.

    For example, Shell Energy is backed by one of the world’s largest brands whose diverse energy resources ensure our security of supply. This allows us to offer competitive rates to all of our customers through a variety of different solutions dependent on their challenges and needs.

    Our experts specialise in energy risk management and energy procurement for businesses and would be happy to assist when negotiating your new business energy contract.

    We’re ready to help. Get in touch today.

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