What happens when your energy supplier goes bust?

Wholesale gas prices have surged 250% since January. With this unprecedented increase and the news of some UK energy suppliers in financial hardship - you may be asking 'what happens if my energy supplier goes bust?'

Here's an answer for both home energy and business energy customers.

Home Energy 

If a supplier happens to go 'bust', Ofgem (the UK regulator for the gas and electricity industry) will ensure that you will be switched to a new energy supplier. Your gas and electricity supply will continue uninterrupted.

This is the last resort and any credit accumulated with your old supplier will be transferred also. If an energy supplier is not available to take on your supply, the regulator Ofgem and the government will work together and appoint a special administrator. This means your old tariff will automatically come to an end and a new supplier will place you on a special 'deemed rate' contract. This lasts for as long as you want it to.

Deemed contract rates are usually quite expensive. The new supplier will automatically place you on this type of deal as they are taking on more risk.

Should you be transferred to a new energy supplier as a result of your old one going bust. You should compare the latest energy deals to see if you can save money.

You will not be charged any exit fees to transfer to a new supplier in this scenario.

Business Energy 

Business energy works similarly. Ofgem will ensure you're transferred to a new supplier and your gas and electricity will move over to a new supplier uninterrupted. You will be placed on a deemed contract - however, the difference between home and business energy is if you're in credit with your old supplier.

Business energy is not protected in the same way as domestic. This means that any credit balances will not be transferred over, and you may not get your money back. In the first instance, Ofgem will try to choose an energy supplier that can refund some or all your credit.

If you have a large amount of credit with your old supplier, you will need to contact the administrator who will be handling its debt to register as a creditor and explain how much you're owed. You will need some evidence so you should have recent energy bills to hand. Any refunds can take over 12-months and you may only receive some money back.

How does Ofgem choose my new supplier? 

Ofgem refer to this process as 'The Ofgem Safety Net'. This means when a supplier ceases to trade, Ofgem steps in to make sure supply continues and contracts are honoured.

Ofgem takes responsibility for finding the customers of the closed company a new supplier and will do their utmost to ensure that you don’t even notice a transition.

When selecting a new supplier, Ofgem will place your account out to tender. This competitive process is designed to get you the best deal. This usually takes a couple of days and is often referred to as a 'Supplier of Last Resort'.

Ofgem will ensure that your new supplier can manage the new customer accounts efficiently and can offer competitive energy rates. Once Ofgem has completed this process, your new energy supplier will get in touch with all the details. You're free to switch energy supplier at any point if you're not happy with your new energy supplier.

Why are wholesale energy prices rising?

With a 250% increase in energy prices since January - several factors have come into play. There is no single reason why UK energy prices are soaring.

Here are some of the reasons that seem to have come all at once:

• A cold in winter in 2020 & 2021 caused the UK to drain a lot of the national gas shortage in a period where gas is difficult to source.
• Post-lockdown energy demand has soured across Asia - who supply gas to the majority of Europe - leading to a race to refill gas stores before they return to colder temperatures.
• Ofgem's increase in the energy price cap.
• The UK has had one of its least windy summers since 1961 at the most inopportune times - leading to low amounts of wind power generated.
• Delays involving the Nord Stream 2 - a long offshore natural gas pipeline connecting Europe to a large reserve in Russia - has had some complications.
• Finally, the demand has shot up in recent months following the recent shutdown of a major power cable that brings in electricity from France.

Many suppliers have been slowly increasing tariff costs throughout 2021 to pass the higher whole energy costs on to customers. These wholesale energy costs account for around 40% of your energy bill, so this has caused an increase in energy prices.

What does this mean for my energy bills?

Whilst increasing energy prices are inevitable, it is really about damage limitation and setting yourself up to get the best energy deal possible.

Home energy customers could let their energy supplier move them automatically to the company's standard variable tariff. This is protected by Ofgem's energy price cap. This is an expensive option, but in the current climate, all options are expensive. The price cap begins on 1st October. Households will need to wait out the energy market chaos for prices to become cheaper.

The other option is to compare energy prices as soon as possible. It is advisable to lock in the cheapest one or two years fixed energy tariff for now. Prices are quickly rising though, so it is better to do this sooner rather than later. This option will allow you to switch to a cheaper fixed tariff once the price comes down.

Even if you only plan to stay on the fixed tariff deal for half of the term, paying the exit fees could work out much cheaper than letting your energy contract roll over onto a standard variable tariff. Typical exit fees are only usually £30 per fuel.

It may also be a good idea for home energy customers to see if they are eligible for the Warm Home Discount. Eligible applications will receive £140 towards energy bills.

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