UK energy suppliers could go bust after Saudi attacks, experts warn
An attack on Saudi oil facilities might turn the screws on struggling energy suppliers, experts have warned, a year after a winter that felled several smaller firms.
More companies might face bankruptcy if they have not bought enough energy in advance to supply their customers through what could be an unusually chilly winter.
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Several energy sites in Saudi Arabia were attacked over the weekend, sending oil markets into a panic, with prices jumping as much as 20 per cent.
Energy suppliers often buy gas and electricity from the wholesale market in advance – so-called hedging – to avoid any shocks. However some do not hedge.
“Suppliers who continue to sell fixed prices without fixed wholesale costs will again be placed at risk of failure,” Ian Barker, the managing partner at Bfy Consulting, told City PM
Meanwhile the deadline to pay into Ofgem’s fund to finance renewable generation passed last month. All suppliers that do not source enough of their energy from renewable sources are forced to pay into the fund. They can defer payment to 31 October.
Last year the so-called renewable obligation was a good bellwether for struggling companies. In November Ofgem said that Economy Energy and Spark Energy had not met their obligations under the scheme. Both later went bust.
They were among around a dozen small suppliers to go out of business in less than two years.
“When you add in the impending deadline for renewable obligations, the cash flow situation could become very tight for a few of the smaller energy companies, who trade day to day on the commodities market,” Rik Smith at Uswitch told City PM
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Some suppliers might be able to pass on costs to suppliers, but many customers are locked into year-long deals where they are guaranteed a per-unit price. And even those on variable tariffs are protected by an upper limit, enforced by Ofgem, which is set to be lowered from 1 October.
“With an increase in oil prices expected to lead to a commensurate rise in gas and electricity prices, this will be reflected in higher tariffs for customers going forward, while existing fixed-price fixed-duration tariffs may also be withdrawn,” said Craig Lowrey at Cornwall Insight, an energy consultancy.