As has been well documented over recent months, the energy market is currently amid a crisis with record high prices and as many as 26 suppliers having gone into administration because of the current conditions. So, the big questions are how have we got to this stage and what does this mean moving forwards?
To help with this, we’ve detailed below some key information and points for consideration as we move into 2022 and a period of continued uncertainty.
Why have so many energy suppliers gone into administration?
An unprecedented surge in wholesale energy prices in the wake of the pandemic exacerbated the problems that were already inherent in the market. Energy companies, (especially smaller suppliers), operate on razor-thin margins. That is, after all, their USP when compared to larger suppliers and to enable them to remain competitive.
The surge in unforeseen wholesale energy costs led to an inability for these smaller suppliers to cover operational expenses. Unable to pass the increase in costs to the consumer because of the price cap implemented in 2019, suppliers of all shapes and sizes were left with no choice but to stop trading.
What Impact will this have on the rest of the market and us as consumers?
The number of suppliers going into administration will certainly impact the market with any shortfall in payments for pass-through elements, (required as part of the supplier license code), now likely to be picked up by all consumers over the coming years. A number of these pass-through costs have also increased because of the pandemic.
One other element to consider is the UK’s transition to electrification and the commitments already made to help with achieving our Net Zero targets. These commitments require investment from all consumers and therefore it is anticipated that several of the industry’s pass-through costs will increase further over the coming five years to help support the UK’s green generation with commitments already being made for the construction of considerable offshore wind farms. If you want some further details on these pass-through costs, then please follow this link.
What does this mean for 2022?
It is safe to say that whilst the unprecedented surge in wholesale prices continue, there is a considerable risk that other suppliers could be forced to exit the market. Ofgem are currently reviewing ways in which they can help support existing suppliers with the price cap to be reviewed more frequently being just one consideration however whilst we remain in unprecedented times, this isn’t a risk that is likely to go away soon.
What do I need to mindful of?
Given the current situation and increase in both wholesale and non-commodity costs, it is highly likely and already known that suppliers can’t always absorb these increased costs and therefore they may wish to pass these onto the consumer, even if you are in a fixed term contract.
A lot of fixed term contracts will contain certain terms and conditions that enable this possibility as these are unforeseen circumstances that couldn’t have been predicted by suppliers and therefore, they may wish to exercise this option and pass these additional non-commodity costs on.
Since lockdown we have experienced delays with suppliers. All suppliers have longer response times to queries, obtaining invoices and general requests. Many suppliers have made staff redundant and still have staff working from home, making it harder to escalate requests or queries via phone.
Despite an improvement in response times and some return to the office from suppliers, we are still experiencing delays.
That said, we continue to work with them to improve on the service and ensure we can respond to your requests in a timely manner. The teams at Zenergi will chase by phone where possible and escalate to Leadership if they encounter any barriers in progressing their queries.