Bulb buyout to cost taxpayers and potential blackouts in Manchester this winter

Energy firm Bulb's collapse may cost you £200

If you pay tax then you will be funding Bulb’s rescue, after it was bailed out by taxpayers. Every UK taxpayer’s estimated bill is expected to be more than £200 extra.

So how did a firm that end up becoming the government's biggest bailout since the 2008 financial crisis? For main reasons:

Bad regulation, bad luck, bad government policy and probably some bad maths.

1. Bad regulation

Over the last two decades the energy regulator Ofgem, prioritised stimulating competition in the energy market as the best way to bring down energy bills. There was a proliferation of dozens of new providers competing via comparison websites and enabled by easy switching.

Many of these companies had little or no shock-absorbing financial reserves. That was fine, as long as they could pass wholesale cost increases to their customers. Well run companies managed their risk by buying in advance.

When the energy price cap was introduced at the beginning of 2019, the landscape changed. It introduced the risk that energy companies might have to buy energy at a higher cost than they could sell it. This bankrupted dozens of companies which didn't have the financial reserves to absorb these losses.

This exposed the regulator's failure to pay due - or any - regard to the financial resilience of the companies it regulated.

Ofgem had a system whereby the customers of these small, failed companies were absorbed by the larger, surviving companies. But Bulb was deemed too big for other companies to want to absorb and see another big hike to consumer bills at a time when energy costs were soaring.

So in November 2021 Bulb was nationalised and special administrators appointed to run it. The government hoped to sell the business by the following spring and set aside £1.7bn to buy the energy to keep supplying Bulb customers until that time.

2. Bad Luck

But worse was to come and energy prices rocketed again when Russia invaded Ukraine in February 2022, discouraging any would-be buyers. The government found itself owning an energy supplier as prices continued to rise. At the same time the energy price cap, set every six months, meant they were painfully exposed to the extreme volatility of wholesale energy prices.

3. Bad Policy

The reason more energy companies didn't go bust was that the well-run, financially-resilient ones had insured themselves ("hedged") against that volatility by buying the gas they needed for their customers well in advance.

But the Treasury has a long-standing reluctance to do this. But this is a preference, not a rule. However, it chose not to.

4. Bad Maths?

But even that is not the main driver of the whopping £6.5bn bill for Bulb, but they have currently spent less than £1.2bn. It seems the vast majority of the estimated bill comes from Treasury assumptions about a complex set of moving parts.

To transfer Bulb back into private ownership, the government has to set aside money to protect the would-be buyer from taking on risks that might ruin the company (Octopus) acquiring it.

Industry sources have told the BBC that the government appears to have taken the most conservative/most pessimistic view on all of these factors.

The deal currently in front of the courts for Octopus to take control of Bulb includes a profit sharing agreement which would see Bulb repay some of the government support over time if Octopus made a profit supplying Bulb's customers.

Estimates of the final likely bill range from "only" £3bn to £4bn, rather than the £6.5bn current estimate.

Sources close to Octopus insist that the government needs to proceed quickly as Bulb's consumer satisfaction scores are plummeting, leaving the government and the taxpayer with an asset deteriorating in value.

Not over yet

The great energy bust of 2021 and 2022 may not yet be over. The Business Secretary Grant Shapps, recently wrote to the remaining suppliers urging them to reduce customer direct debits when they used less energy prompting some, including Centrica boss Chris O'Shea, to imply that some companies were essentially borrowing money from their customers to finance their operations.

The great energy bust of 2021 and 2022 may not yet be over. The Business Secretary Grant Shapps, recently wrote to the remaining suppliers urging them to reduce customer direct debits when they used less energy prompting some, including Centrica boss Chris O'Shea, to imply that some companies were essentially borrowing money from their customers to finance their operations.

Ofgem has promised a new regime where the financial resilience of market participants, rather than their sheer number, is top of mind.

Emergency three-hour blackouts are a real possibility in Greater Manchester this winter

Details of how possible emergency three-hour blackouts in Greater Manchester would impact millions of people have been laid out.

Local leaders say planned power cuts, though improbable, may be needed.

If they are, they would likely take place once a day in the early evening. They would not mean power going off across the entire region at once - and there would be a few days' notice.

The Greater Manchester Resilience Forum oversees the region's emergency planning. Chair, Assistant Chief Constable Wasim Chaudhry, says those who are 'medically dependent' on electricity - such as people reliant on dialysis or oxygen machines - should already have back-up plans in place.

ACC Wasim Chaudhry said leaders were not expecting to see emergency planned power cuts this winter due to the 'secure, reliable and diverse national energy system'.

He added: "In the unlikely event that emergency planned power cuts are needed, National Grid would inform local electricity network operators, including Electricity North West, to prepare for rolling three-hour power cuts across the region for individual areas, perhaps once a day in the early evening. It would not involve the whole country, region or cities going off at once, and we would expect to get a few days' notice.

Customers in vulnerable circumstances can join Electricity North West’s free extra care register for additional help and support. While joining the register does not protect customers from any type of power cuts, they will receive tailored communications to keep them informed.

The GC Business Growth Hub’s #HereForBusiness support package provides practical help and guidance and expert advice on a range of topics to help businesses manage the increasing cost of doing business.   

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