Households could foot the bill as Octopus acquires Bulb
Government bail-out plan may cost the country £4bn as energy giant gets green light to buy failed rival
OCTOPUS ENERGY has agreed to buy collapsed rival Bulb in a deal that could cost households £4billion.
Bulb’s 1.5 million customers will be transferred to Octopus as part of the agreement, which is believed to be the most expensive since the bailout of the Royal Bank of Scotland in 2008.
Octopus, which already has more than 3 million customers, will become the UK’s third largest energy supplier.
Grant Shapps, the Business and Energy Secretary, described it as a “fresh start”, adding: “[The] sale will bring vital reassurance and energy security to consumers across the country at a time when they need it most.”
Bulb collapsed in November 2021 after failing to buy energy far enough in advance, leaving it exposed to rocketing wholesale prices and forcing it to sell energy at a loss.
It became the first supplier to be put into “special administration” after Ofgem, the industry watchdog, warned that doing so was “essential”.
The Government appointed Teneo to run the company with taxpayer money until a buyer could be found.
Keeping the company going increased public sector net borrowing by an estimated £1.2billion last financial year, according to the Office for Budget Responsibility. Meanwhile, the National Audit Office said it had cost £900,000.
Analysts put the total cost so far at around £1.5billion.
Tony Jordan, of energy consultancy Auxilione, estimates the bill for taxpayers could end up being closer to £4billion after the Government revealed it will give financial support to buy energy for Bulb customers this winter.
It said it will “provide the remaining funding necessary to ensure that the special administration is wound up in a way that protects customers’ supply”, adding that it can recoup these costs at a later date.
Mr Jordan is sceptical that it will be able to reclaim this money. He estimates that purchasing the energy Bulb customers use this winter would cost £2.5billion at current market prices.
“If you look at how energy companies make money, there’s not going to be a lot to share. So I’d be surprised if the Government sees any of this money back,” he said.
The Government would not confirm the figure, saying that due to “high market volatility” it was impossible to forecast the true cost.
The costs to consumers will be reflected in higher energy bills rather than taxation, according to the Department for Business, Energy and Industrial Strategy.
Octopus said it is paying the Government “above market value” to take on Bulb’s customers. It has also agreed to a profit-share agreement with the Government that will last up to four years.
This means payments to shareholders or the wider Octopus Energy Group would be restricted until the Government is repaid, Octopus said.
“We take our responsibilities very seriously. We will work unbelievably hard to deliver value for taxpayers and to look after Bulb’s staff and customers,” said Greg Jackson, chief executive and founder of Octopus Energy Group.
Rival Ovo Energy launched a lastminute bid to take over Bulb but was unsuccessful.
Several large energy companies were experiencing financial difficulties even before Russia turned off the gas flows to Europe. They can in exceptional circumstances be placed into special administration to allow them to keep trading to ensure continued energy supply and, if possible, be sold later on.
Bulb customers will be switched automatically to Octopus Energy and do not have to take any action.