Thousands of households could lose their energy supplier this winter as small companies face the financial shock of record highs on the UK gas market and a key deadline to hand over renewable energy subsidies at the end of the month.
The energy regulator is monitoring the finances of companies amid concerns that a string of small suppliers could go bust later in the year.
Martin Young, an equity analyst at Investec, said a “combination of many” factors could lead companies to fail or become the target of an opportunistic acquisition by a larger rival.
Some small providers, without a robust financial framework, may have been caught out by the steep gas market rises in recent months if they had not bought enough in advance to supply their customers through the winter months.
Unexpectedly high gas prices could compound the difficulty of meeting a payment deadline of 31 August to hand over money collected from bills to pay renewable energy developers for their clean electricity, Young said.
The deadline, which requires companies to pass on millions of pounds worth of subsidies, has proved fatal to small suppliers in the past.
Suppliers that fail to pay in August have until the end of October to meet a late payment deadline, plus penalty charges, before the regulator begins the process of stripping them of their supply licence.
Young said he expected “consolidation” within the energy industry over the upcoming months through “supplier failures and/or distressed sales” as companies find themselves struggling to meet their debts, and high market costs begin to bite.
“I would expect there to be companies in that situation. Have I got names? No, I haven’t. But Ofgem does announce which suppliers have not paid their renewables obligations and things move from there,” Young said.
The price of gas on UK markets has soared by about 80% this year to surpass 16-year highs and could continue climbing into 2022, according to market experts.
The energy regulator is expected to respond to the market surge on Friday by raising the maximum cap on default energy tariffs by more than 13%, or at least £150 a year, from October. Until energy companies are able to charge their customers more, they may struggle to cover their costs.
An Ofgem spokesperson said the regulator is “proactively” monitoring supplier finances and that suppliers were actively encouraged to engage with it at an early stage if they are likely to get into financial difficulty.
“In the event of a supplier failure, Ofgem’s safety net makes sure that customers stay connected while protecting domestic customers’ credit balances,” he said.
He added that if any supplier fails to meet the late payment deadline in October, or is likely to fail, it will take “decisive action” that could lead to the supplier having their licence revoked.