Two more UK energy suppliers go under due to record high wholesale gas prices, FT reports. Firms backed by BP, one of the world’s seven oil and gas “supermajors”, such as Pure Planet and Colorado energy have become the latest UK gas and electricity suppliers to go bust since the start of August, bringing the total to a daunting amount of 12.
Pure Planet, which was 24% owned by BP, supplied gas and electricity to around 235,000 customers, and Colorado Energy to 15,000. The reasons quoted by Pure Planet for its collapse were the UK’s energy price cap and the record-high wholesale prices it had to face. Echoing widespread belief, the founders of Pure Planet predicted that more firms would follow in their footsteps until the end of the year “unless something” changes. BP’s withdrawal of support, allegedly owing to the risk of “large potential losses” signals that the UK’s energy industry is under considerable pressure.
The saving grace during the uncertainty of today’s energy market is Ofgem’s “supplier of last resort” process, which ensures customers continue to be supplied electricity and gas by an alternate firm if their current provider stops. On Wednesday, Ofgem’s director of retail, Neil Lawrence, said: he wished “to reassure affected customers that they do not need to worry: under our safety net we’ll make sure your energy supplies continue. If you have credit on your account the funds you have paid in are protected and you will not lose the money that is owed to you.
“Ofgem will choose a new supplier for you and while we are doing this our advice is to wait until we appoint a new supplier and do not switch in the meantime. You can rely on your energy supply as normal. We will update you when we have chosen a new supplier, who will then get in touch about your tariff.”
What this process offers is much-needed reassurance for customers, but no such comfort was offered to businesses in the face of their toil to stay afloat during the astronomic rise of natural gas prices by over 250%. Smaller firms such as Pure Planet do not benefit from the cost-reducing efficiency experienced by economies of scale of companies as large as British Gas. As a result, whenever the costs of production go up, larger firms may be able to absorb them or borrow money to run at a loss for a lot longer whilst maintaining low, competitive pricing for their customers, whilst smaller firms simply go bust. In the long term, this advantage may lead to the market for energy and gas becoming more oligopolistic, with only a small number of larger firms in operation. The less competitive market, wherein businesses may yield the power to increase their prices at the detriment of the consumer, also has a negative effect on the industry’s allocative and productive efficiency, therefore posing a threat to productive potential and future growth of the economy as a whole.
Considering this, it isn’t difficult to see why oligopolies are something so thoroughly avoided by economies – it is equally easy to apply this possibility to the current British energy market. The government may consequently be forced to intervene and ensure that this scenario doesn’t occur, through methods such as providing bailouts in order to stop the already high number of collapsing firms from incrementally growing in the build-up to Christmas. The Public Sector Net Borrowing (PNSB), however, has already surpassed £2,224.5 billion this year, and any further borrowing by the government would have to be not only purposeful and targeted but also of guaranteed efficacy to be a reasonable, viable option. It has already become apparent that the government is unlikely to adopt benevolent, loose fiscal policies (if the universal credit cut and planned tax rises are as clear a flag as they appear to be), and so energy supplier’s dreams of being saved by the government are likely to be unattainable. Pure Planet co-founders, Andrew Ralston, Chris Alliott and Steven Day, criticised the government’s decision not to support energy suppliers. “Kwasi Kwarteng says the price cap is non-negotiable. Fair enough,” they said. “But that doesn’t mean helping supply companies needs to be non-negotiable too. If he doesn’t act fast, he’ll have no suppliers to be the minister of.”
The news act as a reminder that the increased cost of living experienced by the UK population is only one of the multiple effects of the soaring gas prices. The current situation is certainly developing into a precarious one: we are gazing at a considerable decrease in people’s living standards as real disposable incomes decrease, and the rising number of gas and electricity firms that are forced to shut down seems unlikely to be tackled by the government in the near future, something that leaves us simply gazing at all of the negative effects of a more unhappy population and a less efficient industry. As we have since August, we can only continue to hope that the prices of gas will return to a normal rate, or as close to one as can be afforded, in order to minimise the loss of welfare that is becoming progressively more noticeable.
Written by Nicola Craciun