Fears Grow that Bulb is on the Verge of Collapse

Plans for a rescue deal for Bulb foundered over this weekend, raising fears that the energy crisis will claim its largest company and plunge the strained supplier of last resort (SoLR) mechanism into turmoil.

The future of the UK’s seventh-largest supplier has been in doubt since September when it appointed financial advisors Lazard to help it secure new sources of funding to survive a winter of soaring natural gas prices. Mooted bailout plans included fresh financing from investors, a joint venture or merger with another energy market player, or a buyout, with rivals OVO, Octopus, Shell Energy, and British Gas owner Centrica mentioned as potential buyers.

But hopes for that rescue faded late last week. Sources told the Guardian that the cost of rescuing Bulb, thought to be saddled with liabilities of between £600 million and £1 billion, could be too high for most companies to take on without government help, particularly with the ongoing volatility in the wholesale energy markets. Sky News reported on Friday that while a small number of potential buyers remain in talks with Bulb, others had pulled out in the previous few days.

Bulb is said to be unlikely to survive through November without new funding, raising the prospect that 1.7 million households could be left without an energy supplier—a number potentially too large to be absorbed by competitors.

Usually, the customers of failed suppliers are migrated to a rival company that agrees to act as supplier of last resort (SoLR) and cover the upfront costs of migrating accounts and protecting domestic customers’ credit balances (although it can claim some of these costs back through an industry-wide levy). This mechanism has thus far continued to function during the energy crisis, with Ofgem finding new suppliers for 2.1 million customers abandoned by the collapse of 14 companies.

However, a number of surviving energy companies have recused themselves from any rescues, saying the logistical and financial challenges of absorbing hundreds of thousands of customers, particularly when the price cap requires them to supply most at a loss, could overwhelm them. This is especially the case with a major failure like Bulb, which would strand 1.7 million households. The SoLR mechanism has never handled an exit of such a large supplier.

Anticipating the failure of a major supplier, likely Bulb, Ofgem last month put City firm Teneo on standby to step in as a special administrator and run the company through the winter until prices normalise and a buyer can be found. Those contingency plans were accelerated over the weekend as Bulb's rescue became increasingly unlikely, Sky News reported.

Bulb was founded in 2015 and quickly grew into a major player, attracting customers with its green tariffs and slick advertisements and eventually controlling 6% of the domestic energy market. However, it made losses even as its revenue grew more quickly than any other company in Europe. Its most recent results, for 2019-20, showed the company losing £59 million, although that year it was the destination for 15% of all customer switches.

Bulb was publicly sanguine about its rescue prospects on Friday, with a spokesperson saying “discussions with multiple parties to secure funding continue to make good progress.” Bulb also said it is “encouraged by the drop in wholesale energy prices.” UK and European natural gas prices dropped on Thursday after Russian president Vladimir Putin ordered more gas to be pumped into Europe. However, they remain much higher than usual.

The government said Ofgem’s processes would minimise disruption to customers as a result of the crisis. “Ofgem—as the expert regulator—is monitoring the situation across the energy market for the continued impacts on high worldwide wholesale gas prices,” a spokesperson said. “We have put in place the powers and robust processes to ensure customers do not experience any disruption to their energy supply and that costs are minimised if a supplier should exit the market.”