Many more of the UK’s small energy suppliers are heading for insolvency because of huge hikes in wholesale gas prices.

Industry body, Oil & Gas UK, said wholesale prices for gas are up 250% since January – with a 70% increase since August. Smaller firms have less buying power and are unlikely to have hedged their exposure to the rapidly rising prices.

Overall, there is a global gas shortage, with countries such as Norway, Russia, and the Middle East all affected. Low wind speeds have reduced the UK’s renewable energy generation, and a string of outages at UK power plants and a major cable connecting the UK to France have forced up market prices.

It is understood the government is aware of the crisis but is mainly concerned that consumers continue to access supplies, rather than coming up with support measures for small suppliers.

What is the Government Doing?

Business secretary, Kwasi Kwarteng, has spoken recently to the energy regulator, Ofgem, as well as energy company chiefs to look at what solutions exist and if intervention may be needed.

Kwarteng said: “Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, home-grown renewable energy sector to further reduce our reliance on fossil fuels.”

Meanwhile, in Spain, the government launched a windfall tax on energy generators and gas suppliers, which are earning record revenues. This will be used for a  €3 billion (£2.6 billion) fund to help reduce home energy bills. However, it is understood the UK does not favour such a move.

Further, The Guardian reported the government was  “not interested in bailing out badly run companies” and may leave the sector to experience a “natural response” to the situation.

Recent Energy Company Failures

Energy suppliers that have collapsed in recent months include Utility Point, People’s Energy, PfP Energy, MoneyPlus Energy, and HUB Energy.

It has also just been reporting that Bulb Energy is attempting to find new sources of funding. The business has some £1.7 million customers in the UK and is the UK’s sixth-largest supplier.

In the event of business failure, Ofgem appoints another provider, which will be one of the ‘big six’ energy companies to ensure there is no disruption to the customer’s supply.

The closures are expected to impact in excess of a million customers. It is believed that the sector may undergo massive contraction, shrinking from around 70 suppliers at the start of the year to about 10.

Company Debt director, Simon Renshaw, said: “As concerning as this is for consumers, there are wider implications across the economy. Rising costs and shortages will indeed lead to more fuel poverty and less supplier choice for people but these company failures are also having implications on businesses and may push some in other sectors into insolvency.

“As we are seeing, gas has become unaffordable in some cases and this has resulted in knock-on effects at chemical producers and steelmakers. This has meant CO2 shortages, which is threatening the food sector.  It’s a worrying situation and suggests that sectors, and indeed the government, must take steps to better prepare for price volatility.”

Read more about Company Debt’s insolvency and rescue solutions for energy providers.