What Happens When an Energy Supplier Goes Bust?
With the recent announcement that Rebel Energy has ceased trading, many customers may be wondering what this means for them and the next steps.
This is why we have created this blog; we will be explaining the common reasons an energy supplier goes bust, how the process works and the steps you as the customer can take to stay protected.
What’s the difference between a business going bust and ceasing to trade?
When a business goes into liquidation, or ‘goes bust’, it closes down completely and is removed from the Companies House register with all assets sold off to repay creditors. When a company ceases trading, it can still be registered as a limited company even though its business activities have ended.
Please note in this blog we will be using the terms interchangeably.
Why Do Energy Suppliers Go Bust?
After a relatively stable period for the UK energy market, the unfortunate collapse of Rebel Energy marks the end of a long lull in supplier failures with the last occurrence dating back to early 2022. Latest stats show that 53 UK energy suppliers have gone bust since 2018, but why do energy suppliers go bust?
Rebel Energy founder Dan Bates recently stated that a ‘perfect storm’ of soaring wholesale prices and squeezed customers as the primary reasons for the business ceasing trading.
These are both common reasons but there are more, lets discuss them in more detail:
Wholesale costs: Wholesale energy costs are the prices that the supplier pays to buy the gas or electricity they sell to you. In some instances, suppliers will offer low rates to entice new customers but then encounter issues when wholesale prices suddenly soar leading to them making a loss on those low-rate fixed contracts.
Squeezed customers: With rising energy costs, consumers are being more mindful of their energy use. Many are trying to reduce their consumption where possible leading to a reduction in revenue for suppliers.
Government levies: The UK government has charges in place to support vulnerable customers and to encourage the uptake of renewable energy, such as the Renewables Obligation (RO). If a supplier is unable to pay these levies, they’re fined, which can be enough in some case to put an energy supplier out of business. An example of this would Spark Energy, who were handed a £14m bill by Ofgem in 2018 for non-payment of its RO and led to the supplier ceasing trading.
The above are just a few reasons why an energy supplier may go bust, there are several other reasons such as business model, failure to secure funding, poor customer retention, inadequate trading strategies and more. We are seeing that all the above factors are affecting UK energy suppliers, with the smaller suppliers being the most vulnerable.
What Happens to Customers?
First things first, we want to reassure you that if your energy supplier goes bust, your energy will not be cut off and you will not see any disruption with your energy supply.
Ofgem, the UK’s energy regulator, has a safety net in place to ensure that the above is adhered to and will begin the process of appointing a new supplier to replace the supplier that ceases trading, also known as a Supplier of Last Resort (SoLR).
Ofgem has recently announced British Gas as the Supplier of Last Resort, meaning Rebel Energy’s 84,000 domestic and 6,000 non-domestic customers will be contacted shortly. If customers wish to switch providers, they can do so with exit charges waived in this instance.
Supplier of Last Resort (SoLR) and how long does this take?
As previously stated, following an energy supplier ceasing trading Ofgem will begin the process of appointing a new supplier to take over these contacts, this is known as a SoLR.
In general, a new supplier will be appointed by Ofgem within 14 days.
To try and make sure your business is switched to a deal that is competitive as possible, Ofgem puts all the old supplier’s contracts into a bidding process. Once this has been completed, it will choose a supplier that it feels will be best suited to meet the needs and demands of the customers.
If you have a smart meter installed and it is not compatible with the new supplier, the meter will still function but will lose its smart capabilities. This means it will operate like a regular meter, and you will need to provide your meter readings manually.
Once a new supplier has been selected Ofgem will announce this via its website and social media channels and the ne supplier will be in touch to arrange a contract. Please remember, you do not have to sign with the appointed SoLR, so it is worthwhile to shop around to see if you can get a better deal elsewhere.
If you are in this position, get a free no obligation from Dyce Energy here
What happens with my contract and rates?
If your energy supplier goes bust or ceases trading, your contract with them will automatically end.
When Ofgem appoints a new supplier, you will usually be placed on a variable rate deal or out of contract, also called deemed rates, tariff. This means you will likely be paying more than your previous fixed rate contract and will be more susceptible to future energy price rises.
The rates are higher on these contracts as there is more risk to the new energy supplier as they don’t know you as a customer, meaning it cannot be certain of how you manage your monthly payments. Another reason why rates may be higher is the fact that the new supplier may need to buy energy at short notice for new customers from the wholesale market which is sold at a higher rate and these additional costs are passed down to the customer.
What if you’re in debt with your energy supplier?
If you have an outstanding debt on your account when your energy supplier goes bust, you are still required to repay this.
If you are in debt and are looking to switch away from the Ofgem appointed SoLR, being in debt may mean your switch is objected to until the debt has been cleared.
If the appointed SoLR takes on the debt, they will be in touch to discuss your options for clearing this including a repayment plan.
If an administrator takes on the debt, they will collect payment on behalf of your old supplier, meaning you may receive bills from the administrator instead of your old supplier.
In any case, you should be able to negotiate a manageable repayment plan to clear any debt on your account.
What if you’re in credit with your energy supplier?
If you were in credit with your old supplier, Ofgem will try to find a supplier that is able to either refund a portion or all the money to you. But unlike when domestic supplier goes bust, this is not guaranteed by Ofgem’s safety net.
If you are in this position, you will need to wait for the new supplier to get in touch and let you know what the situation is. If they are unable to refund your credit, then you will need to get in touch with the administrator for your old supplier. You should be able to find the details for the administrator on your old supplier’s website or through communications sent out by your old supplier following them ceasing trading.
When getting in touch with the administrator, you will need to register your business as a creditor (This is just technical jargon for someone who is owed money) and send proof that your account was in credit. You can do this using old bills and statements, which you may have available as paper copies, in your emails or you may need to log into your online account to access and download these.
Following this you will need to wait for the administration process, this can be a long time with some cases lasting longer than a year. The amount you receive is dependent on how much your old supplier owes to all its creditors, meaning you may not receive all the money that you are owed.
What if you have an unresolved complaint with your energy supplier?
If you have an outstanding complaint with your old supplier that has not been dealt with, you should raise this with your supplier, this includes any complaints around billing and your account balance.
Please note that your new supplier is not obligated to take any unresolved complained further.
If your complaint has been escalated to the energy ombudsman, they will reach out to discuss the next steps for your business.
I was in the process of switching providers will this still go ahead?
There is no need for you to worry, if the switch was already in progress, you will continue to move to the new supplier you have chosen.
If your switch is not immediate, you may be contacted by the SoLR to arrange a contract for the interim or you may be placed onto their variable rate or deemed rate tariff until your switch date.
What to do while you wait for a new supplier?
Whilst you are awaiting the SoLR to reach out, you can be proactive in gathering resources.
If you have an online account with your old supplier, it is best practice to login and check your balance and download your bill and account history to look over yourself. Before your new supplier reaches out, you should also:
- Take meter readings and try to photograph this as well with date stamps
- Download and keep any old bills and statements, these can be used at a later date to prove payment history, credit balance or debt.
- Make a note of your account balance.
To avoid any payment issues, Ofgem advises that you do not cancel your direct debit, if you do you could be at risk of accumulating debt.
It is also advised that you do not panic switch to another supplier, while its advisable to shop around to see what deals are available to your business, do not sign anything until you have contract offer from the SoLR.
Next Steps and Where to Find Support
While the news of an energy supplier going bust, such as Rebel Energy, can understandably cause concern, it’s important to remember that protections are in place to ensure continuity in energy supply and financial safeguards for customers.
Ofgem has a well-established process to manage these situations and ensure customers are switched to new supplier with minimal disruption.
If your energy supplier goes bust the key things to remember are:
- Your energy will not be cut off
- Your credit balance is likely to be protected
- You do not need to take immediate action
- You are not required to sign up with the SoLR
The best practice is to take a meter reading, gather your old bills and statements, await your new supplier reach out and assess your options once the transition is complete.
At Dyce Energy, we’re proud to be a stable, customer-focused supplier offering straightforward pricing and personal service. If you’re looking for peace of mind and a reliable energy partner, we’d be happy to help, get a quote from us today!
If you’re affected by a supplier going bust, Ofgem’s official guidance can walk you through the process and explain what to expect every step of the way.
Should you have any concerns or need help with your current energy account with Dyce Energy, you can always get in touch with our Customer Support team for assistance.
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