Collapses will cost around £2.7 billion

HOUSEHOLD energy bills are likely to increase by around £2.7 billion to cover the costs of the 28 energy suppliers that have gone bust in the last year, it has emerged.

The National Audit Office (NAO) has said that, while the failures were caused by massive changes in the energy market, regulator Ofgem is also partly to blame.

The watchdog’s approach to how it licensed and monitored suppliers over much of the last decade increased the risk of them failing, but also added to costs when they did, the NAO found.

Ofgem’s processes have been good at ensuring that households do not have their energy cut off when a supplier fails.

It fixes this through the so-called supplier of last resort system which asks a rival company to take over the supply of energy to those households.

But the system has many potential pitfalls. For instance, customers will often be moved to a more expensive deal with their new supplier – Citizens Advice estimates it adds about £30 per month to bills for the average customer.

Some customers will also be taken off their debt-repayment plans, which hits the most vulnerable hardest.

But the most widespread problem is the cost of transferring the customers. Instead of just affecting the customers of the failed supplier, it is spread over all households in Great Britain.

It will cost households a combined £2.7 billion to cover the transfer of 2.4 million customers to a new supplier – around £94 each – Ofgem estimates.

This is before taking into account the potentially multi-billion charge that households could face due to the collapse of Bulb Energy.

The Department for Business, Energy and Industrial Strategy (BEIS) has set aside £1.9 billion so far to run the energy company in administration. It was considered too big to allow it to fail.

This cost could be passed on to bill-payers.

Head of the NAO Gareth Davies said: “Ofgem and BEIS ensured that the vast majority of consumers faced no disruption to their energy supply when their provider failed.”

But he criticised close to a decade of lax regulation of energy companies.

New rules for new suppliers will change this, but those rules only came into force in 2019, and it was not until 2021 that they were implemented for existing suppliers.

“By allowing so many suppliers with weak finances to enter the market, and by failing to imagine that there could be a long period of volatility in energy prices, Ofgem allowed a market to develop that was vulnerable to large-scale shocks,” he said.

“Consumers have borne the brunt of supplier failures at a time when many households are already under significant financial strain, having seen their bills go up to record levels. A supplier market must be developed that truly works for consumers.”

In 2015 the coalition government said that households were missing out on around £2.7 billion in savings by not switching suppliers. This is now the same amount that the supplier failures are thought to have cost.

At the time there were 26 suppliers in the market and a Government press release said millions could save around £200 on their bills.

By mid-2018 the number of suppliers had peaked at more than 70, the NAO said. Today there are 23.