The crisis in the UK’s energy market has been growing in scale and seriousness for months. This week it claimed its latest corporate victim – and reached a tipping point. Bulb is the 23rd energy supplier to fail since August, but, unlike minnows such as Igloo and Neon Reef, it cannot easily be taken over by a rival. With turnover of £1.5bn, it is simply too big.
Bulb will instead enter “special administration” and be run on behalf of the government until it can be broken up or sold off. Meanwhile, its 1.7 million customers will remain with the company and get the same corporate branding on their bills, even while taxpayers stump up for any immediate costs. Any final losses will be passed on to households through their fuel bills.
Like the other corporate failures before it, Bulb has been quick to blame the government-imposed cap on fuel bills, which limited how far it could pass on the soaring costs it faced in the wholesale market. But Bulb’s directors and investors have their own case to face. Founded in 2015, the startup posed as less of an energy company and more of a tech firm – the Deliveroo or Uber of the fuel market that would challenge the old logic of the sector.
Like any Silicon Valley wannabe, it was more bothered about market share than profit – which was handy, as it never made one. Instead, it took on households and business customers at below cost and sported groovy advertising. A triumph of marketing, it brought no real innovation to the industry.
For government ministers, this was the hungry young competitor from central casting. Its east London offices were visited this July by Boris Johnson who, with his customary restraint and financial acumen, declared it a “wonderful company”. Its chief executive, 38-year-old Hayden Wood, was placed on the government’s Sustainable Business Council. Sadly, his own business has proved wholly unsustainable.
There is about this whole sorry affair a strong whiff of Northern Rock. In the 2000s, that was a challenger bank offering cheap mortgages, indulged by a dopey regulator and all the while relying on a precarious business model. Just like the old Newcastle bank, Bulb’s collapse raises some serious questions about the true purpose of competition in what is a utility sector. If a taxi app collapses, it ultimately does not matter as much as the failure of a supplier of finance or fuel.
In the short term, one obvious solution is for the watchdog Ofgem to pay far more attention to the financial viability of businesses in its sector. That will frankly make it harder for smaller players without ready access to a cash fountain. So over the long run there is a big question about how the sector can deliver lower prices and energy security while helping the UK move towards a lower carbon future.
The answer to that will probably not lie wholly through a market solution. It may involve a much larger role for the state, either through further regulation and funding, or even a public sector entity. Someone should tell Sid.