One in four UK households exposed to vulnerable unhedged suppliers

As many as one-in-four UK households receive energy from providers that could face collapse as a consequence of soaring gas prices, industry sources have warned.

A 250% increase in prices has exposed providers whose wholesale supplies are not “hedged” or insured against market fluctuations, meaning they can now only fulfil supply deals with customers at a significant loss.

It comes as the business secretary said there is “absolutely no question of the lights going out this winter” and the energy price cap will remain in place despite escalating gas prices.

The increase has already triggered the collapse of two providers and left others vulnerable including Bulb, one of the larger new entrants to the market which has 1.5 million customers.

Wholesale prices for gas have increased 250% since the start of the year, and 70% since August.

Consumers are protected from sudden price hikes by the energy price cap, but this puts pressure on suppliers as they cannot pass on the increase in wholesale gas prices to customers.

The scale of the crisis emerged after a third day of emergency talks between energy providers, regulators and Business Secretary Kwasi Kwarteng aimed at protecting customers of failing firms.

Customers of failed providers are automatically passed to another supplier, but the gap between real-world prices and the Ofgem price cap, estimated to be at least £300 a year, means they will be doing so at a loss.

Industry insiders estimate that providing unhedged energy for every one million new customers at current market rates would cost £1bn, a total bill of up to £6bn if every unhedged firm was to fail.

The huge potential exposure has prompted Mr Kwarteng to consider granting government-backed loans to established providers to ensure they are able to take on new customers.

In talks, Mr Kwarteng has stressed that the government will not bail out failing firms and that no company is “too big to fail”, but the loan proposal is an acknowledgment that the current market is dysfunctional.

Following the talks, he told the House of Commons: “There’s absolutely no question of the lights going out or people being unable to heat their homes.

”There’ll be no three-day working weeks or a throwback to the 1970s. Such thinking is alarmist, unhelpful, and completely misguided.”

He added that there was “no rewards for failing”.

Providers would still have to borrow the funds on commercial markets, but the loans would be secured against government guarantee and be paid back over a long period, with the cost shared across all energy bills.

British Gas on Monday confirmed it is taking on 350,000 customers from the collapsed People’s Energy under the existing “Supplier of Last Resort” arrangements.

Under the scheme it said any costs it could not recover, including those incurred from buying energy, would be recovered from an industry levy.

Many hedged providers argue that the crisis is not about prices, but prudent management and believe that smaller companies who profited from not hedging when prices were falling are now reaping the consequences.


“The market is a dog’s dinner,” said Dale Vince, founder of renewable provider Ecotricity, which hedges all but 10% of its supply.

“We have seen companies selling power for less than they can buy it for and running constant losses to grow a customer base very quickly.

“Then at the same time we’ve got a regulator that says even though there are 70 competitors in the market there’s no competition so let’s have a price cap.

“There is too much interference there, but not enough with the business models and the need for hedging.

“Shouldn’t it be a requirement that energy companies buy what they’re going to sell?”

Newer entrants, however, argue they meet a demand for more straightforward bills and cheaper supply to challenge the dominance of the bigger established players.

Simon McGirr, chief executive of Green Energy, which has 250,000 customers but is unhedged, does not expect the company to survive the winter.

“With the current market conditions we are facing huge financial distress and it will be very difficult to continue trading,” he said.

“Hedging is a fine art and we have not been able to forecast the changing conditions across lockdowns and different rules in different regions.

“We have given people what they wanted, simple cheap tariffs and 95% of customers fully online, but now we are being swept under the carpet by the government.”

Labour’s Ed Miliband accused the government of complacency and said it had known for a long time about the issue with gas.

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