Heat has very much been the theme of this Summer. Unfortunately, this has not only been because of record thermometers in the UK and much of the rest of Europe and what that implies about the impending realities of climate change. There are also temperatures being generated about what the price of energy will be once shorts have been placed back in drawers and flip-flops into cupboards. Estimates for the latest increase in the price caps for electricity and gas are so high that if they come to pass then living standards will be subverted and an all-out recession may be close to inevitable.
Hence the spectacle of politicians of all parties producing plans on the backs of envelopes (the days when fag packets could be used for this sort of activity having long gone) in an attempt to find a means of throwing money at the electorate to offset their energy bills while somehow moving the (massive) cost of such a short-term subsidy on to somebody, anybody really, else. Prices which had started to go through the roof last April, then again last October, then once more this April, appear set to smash their way through yet another roof this October and another one still come April 2023. There is no light at the end of this tunnel. It is more like a tunnel at the end of the (expensive) light.
This sorry saga has been symbolised in many ways but one of the most striking is that of Bulb Energy.
Bulb Energy was not so long ago, if you will excuse the pun, a bright young thing. It has been formed in 2013 to take on the faceless Big Six firms which had come to dominate the energy sector. Bulb was different. All of its electricity and then gas came from renewable sources, which warmed many a heart among those with a green edge to their instincts who were attracted to the company. It also boasted state-of-the art technology, particularly when it came to the payment of bills which made the traditional posted invoice with envelope enclosed in which one was invited to send a cheque (readers of this blog under the age of 35 may need to Google the word “cheque”) seem archaic.
In so far as an energy company can, it caught fire. It saw a rapid increase in its UK customer base. In 2018, it was the fastest growing private company in the country. By 2021, it had acquired 1.6 million consumers of its electricity and gas products. This made it the seventh largest energy supplier in Britain, snapping at the heels of the Big Six firms. It had embarked on an ambitious programme of international expansion. It was red hot
Alas, in retrospect, there were warning signs that all would not be well should the market ever come a cropper. It was funding its supersonic expansion from new investment, not profits. No one seemed to have the slightest idea what would happen if the price cap on domestic energy use (there is no such protection for the business community in the UK) was overtaken by the actual price of the raw material. Bulb did not have the huge resources to allow for forward-purchases (in effect, hedging) which the Big Six did on a routine basis. In early 2021, one of the co-founders left to do something in battery storage instead. Neither ministers nor Ofgem, the regulator, asked questions.
When the end came, it was spectacular and it spoke volumes. Bulb collapsed last November. It was by far the biggest of the, by today, 30 energy companies to be taken out in this crisis. It had far too many customers for Ofgem to reallocate them to other companies without their active consent. So, in a truly Alice in Wonderland outcome, Ofgem had to become the energy supplier of last resort with administrators brought in a bid to find a buyer for the business and take on its customers. While that occurred, the regulator responsible for the price cap had to purchase electricity and gas at levels well above that price cap, ensuring that the taxpayer would be left with a very substantial loss.
Yet, it has been even worse than anticipated less than a year ago. The estimate then was that the Bulb debacle would cost £1.7 billion. It turns out this would have been a bargain. The sum is more than double that figure. Indeed the latest estimate is more than £4 billion by next Spring.
It does not help that, perhaps unsurprisingly, the queue of those interested in acquiring what is left of Bulb is not a long one. By the end of July, the potential suitors were down to one, Octopus Energy, who offered to take Bulb off the hands of the administrator if the Government paid it £1 billion to do so. Public and press outrage may have scuppered that one, leaving Bulb with Ofgem.
In the end, though, this is a tale of massive systemic failure. It has at its roots an arrogant assumption that because energy prices had dipped in the decade running up to 2020, they would continue to decline indefinitely. It is about a reluctance to think through the strategic implications of the choice of energy supply (as the Germans are discovering to their cost). It shows a deep disinterest in Whitehall, Westminster and the media about this sector. It exposes a regulator which had failed to make up its mind as to what was more important, the reliability of supply (even if that entrenched the oligopoly status of the Big Six) or enhanced competition for customers (a nice idea in principle, but with huge risks if those new entrants proved too fragile in adverse conditions).
All the above applied in spades even before Russia invaded Ukraine and made everything far worse. It has been a vast electric shock to all of us. It will take more than 50p coins in a meter to resolve it.