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September 23, 2021

UK’s “unavoidable loss” gas prices pushes smaller utilities to ruin

The UK’s wholesale gas price hike has caused the bankruptcy of two more small utilities, bringing the total to six, with more than 1.5 million customers affected.

By Matt Farmer

A wholesale gas price hike in the UK has caused the bankruptcy of two more small utilities. This brings the total to six, with more expected to follow.

Utilities Avro Energy and Green Supplier both collapsed on Wednesday afternoon, leaving approximately 830,000 customers without an energy supplier. UK energy regulator Ofgem will move customers to another supplier, though utilities remain reluctant to take on new accounts.

These bankruptcies bring the total number of affected customers to 1.5 million. The UK Government continues to discuss a variety of measure to help struggling firms overcome the gas price discrepancy.

More companies are expected to announce bankruptcy in coming days. Meanwhile, the UK’s sixth largest energy company, Bulb, continues talks to secure finance.

Ofgem sets caps on consumer energy tariffs in the UK. Current wholesale gas prices have remained consistently above what the cap allows utilities to charge. While the cap is due to change in October, any purchase that utilities currently make comes at a significant loss to them. After this, utilities can pass the cost on to consumers.

Speaking to lawmakers, Ofgem chief executive Jonathan Brearley said that the industry had recently seen “an unprecedented rise” in gas prices. He also said that supply could “more than meet demand”.

Smaller companies face the most risk from fluctuating prices, having a smaller financial cushion to absorb falling margins. Several “competitor” companies lowered their prices in 2020, taking advantage of record-low gas wholesale prices to lure in new customers.

Meanwhile, larger companies made few changes to their tariffs, massively increasing their profit margins. This wealth has now allowed them to absorb some of the impact of the price hike, while smaller utilities face bankruptcy.

Government officials have attributed the price rises to economic activity increasing as the pandemic eases in the country. Ofgem has also attributed price rises to the need to replenish stocks after a cold winter and spring. At the same time, Asia and South America have bought up LNG shipments in a competitive market, while gas pipeline imports from Norway and Russia remain low.

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