Ofgem says supplier failure costs may reach £2.4bn

The amounts suppliers will receive for taking on customers, following the collapse of their retailers over the past year, could balloon to as much as £2.4 billion, Ofgem has estimated.

The figure is contained in written evidence submitted by regulator to the Business Energy and Industrial Strategy Committee as part of its inquiry into energy prices and the future of the retail market.

Back in December, Ofgem approved £1.83 billion of expedited Last Resort Supply Payment claims submitted by companies that had taken on the customers of failed retailers under the Supplier of Last Resort (SoLR) process.

However in its evidence for the committee, the regulator said it expects to receive further claims from suppliers that have been appointed as SoLRs since December 2021.

While subject to “significant uncertainty”, Ofgem’s current estimate for total claims is approximately £2.2 billion to £2.4 billion.

Of this sum, the cost of buying wholesale energy on the open market for transferred customers is expected to make up approximately 85%.

As suppliers repay outstanding credit balances to consumers, the proportion of costs relating to credit balances could increase from an estimate of 3.6% in December to approximately 10%.

Gillian Cooper, head of energy policy at Citizens Advice, told the committee at Tuesday’s oral evidence session that the total additional SoLR costs would work out at £94 per customer.

In addition, she pointed out that Ofgem’s estimate does not include the costs stemming from November’s collapse of Bulb Energy, which was placed in the separate Special Administration Regime.