The current energy crisis also poses consequences for stakeholders across political, economic and business spheres. In this three-part series we’ve explored the demise of Bulb and what it signifies for the energy industry as a whole, but what about the future?

The crisis continues

The special administration process means that until Bulb’s administrators are able to salvage the business, or find its customers alternate providers, the Treasury must support Bulb so it can continue to serve customers. How long this process will take is uncertain, as its conclusion likely relies on energy prices dampening. However, the company’s administrators are targeting a sale by April, so until that point in time, it’s taxpayers who will have to front the bill to fund the Treasury’s propping up of Bulb. This will cost hundreds of millions, with some experts predicting this cost could run into the billions as more providers collapse in the upcoming months. The news of the 27th company to collapse, Together Energy (who serve 176,000 UK households), is a case and point that this problem isn’t subsiding. 

A sustainable future 

More broadly, Ofgem’s unveiling of the largest ever price cap increase, and recent calls for the removal of green levies that currently subsidise renewable energy efforts, are indicative of not only an industry in flux, but one now forced to operate through a short-term corrective lens. The consequence? Future efforts centred around the protection of consumers and the transition to sustainable fuels are at threat. 

The financial impact

Industry cries for the removal of the price cap were rejected by Business Secretary Kwasi Karteng. This was likely the correct decision, as to abolish the price cap would open the door to excessive pricing by energy companies. And, in the wake of COP26, it’s undeniable that there is an urgent need for society to collectively move towards renewable energy, with the EU and US announcing a partnership to cut methane. Regardless of energy industry bosses alleging that higher prices would aid their transition to renewables, allowing energy suppliers to set their prices and boost the revenue of the “Big Six” would send out the wrong message. Particularly following the collapse of the challenger supplier that had offered 100% renewable. 

Instead, Ofgem has announced it will adjust the price cap more frequently than it currently does, particularly during abnormal times. The most recent of these adjustments was announced on the 2nd of February – a 54% increase (£693 annual increase) in the amount providers can charge consumers for default tariffs, with a further October increase anticipated. This will ring alarm bells for consumers, especially given that Bulb’s special administration regime means taxpayers will already be feeling the impact of the company’s collapse as they support its continued operations. Were more suppliers to fail, this would be felt even greater. As per Ofgem’s own organisational priorities, it is important that industry pains aren’t passed on to consumers via disproportionate price increases. And yet, a record fall in living standards and 25% of households falling into fuel poverty are among the anticipated effects of their most recent adjustment. The government has been quick to respond with a bundle of measures designed to lessen the burden felt by consumers, including a £9.1 billion energy bills rebate aiming to provide households with a £200 bills discount and a council tax rebate.

A record fall in living standards and 25% of households falling into fuel poverty are among the anticipated effects of the new price cap

However, the current workings of the energy industry facilitate an environment where providers and consumers alternate in suffering, and short-term government interventions do little to address this. The price cap rightly exists to protect consumers, but this shouldn’t be to the catastrophic detriment of energy providers, as it has been in recent times. Over 30% of those working full time in the UK are struggling to pay bills. Consumers are now being forced to choose between more food or a warmer home. The rules, regulations and structures currently in place in the industry are in clear need of rectification.  

Other industries suffer

It is not just energy providers and their customers suffering from the energy crisis. Manufacturing, construction and agriculture are just some of the industries that heavily rely on energy. Inevitably, rising cost bases for companies in these industries will result in either reduced production and output or increased consumer prices. For instance, manufacturers that employ energy-intensive production processes have been hit hard by the increase in energy costs, resultantly increasing their own product prices. So, industries such as construction are bearing the brunt of both an increase in energy and material prices. The damaging widespread effects that the energy crisis is having, and will continue to have, are evident: it’s imperative that the risk of such a situation occurring once again is mitigated. 

New priorities

Ofgem’s changes to the frequency of price cap adjustments and introduction of more scrutinous assessments of companies seeking licences to provide energy are steps in the right direction. However, the energy industry in the UK, and on a global scale, needs to be reshaped. Ultimately, the fact that the sharp increase in energy prices has had such detrimental and widespread effects reveals we’re overly reliant on traditional energy forms. Not only that, we’re inefficient in our use of them. So, the bigger issue facing the government is how to help society transition to the new order and facilitate the sustainable use of renewable fuels. 

The detrimental and widespread effects of the energy price rise reveals that we’re overly reliant on traditional energy forms

The need for an immediate change in the manner of our energy consumption is evident. Governments and financial markets alike have been taking action and there has been a resultant decrease in investments into fossil fuel production. Furthermore, in 2021 42% of the UK’s electricity came from renewables — a factor which, when combined with the cost of clean energy falling, bodes well for our long-term future. 

The reality

However, there is a central issue in the shift to sustainable energy. Namely, that (although growing) renewable energy is not yet able to meet our energy needs. The ongoing energy industry crisis aptly reflects the dilemma at play; how can we reduce the use of non-renewable energy sources while also meeting growing energy demands? Some would suggest the answer lies in incentivising energy companies to provide renewable energy, with policies such as the Energy Company Obligation aiming to do just that. However, following the price cap increase and growing global demand for energy, the “Big Six” providers are being encouraged, rather than dis-incentivised, to rapidly meet this demand with non-renewable energy sources. Long term, this represents a lose-lose situation. The UK energy industry returns to the oligopoly of old — challenger providers collapse while the “Big Six” grow — and sustainability efforts are dashed. 

The surviving energy providers of this crisis should take learnings from the 27 providers that have regrettably collapsed. Short-sightedness and a lack of strategic planning can lead to catastrophic failures. Prioritising short-term demand for energy via non-renewables should not diminish efforts to develop renewable energy infrastructure and better our long-term environmental impact. Companies need to take serious action, and governments should ensure they are continuously incentivised to do so.