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What happens if my energy supplier goes bust?

utility and energy companies

Posted by Alex Hartley on in Managing Money

As energy costs have risen in the UK we are increasingly being advised to continually switch energy suppliers to avoid the worst of the price rises. However, since November 2016, 14 small suppliers have gone bust and this has made many consumers nervous. So, should you continue to switch – especially away from the big names in the industry – and what happens if the energy supplier you’re with goes out of business?

Reinventing the market

The energy supply market is one that has long been dominated by the Big Six (British Gas, EDF Energy, E.ON, Npower, Scottish Power, and SSE). However, over the last decade we have begun to see many more competitors entering the market. These new businesses are often innovative and small, seeking to find new ways to deliver energy, frequently in a way that is cheaper or more efficient for consumers. Eversmart, for example, allowed customers to pay for a year’s gas and electricity usage up-front in order to secure the cheapest rates. However, despite this innovative thinking, Eversmart went under and it’s not the only new energy supplier to have done so in recent years.

Why are energy suppliers going bust?

Each situation is different and there could be any number of reasons why an energy supplier ends up being forced out of the market. Experts highlight the uncertainty of Brexit as one of the major issues, as well as high wholesale prices, the Winter Price Cap and a number of other unexpected costs. Some suppliers may also simply be disappointing customers, many of whom have much higher expectations in terms of energy delivery and value for money than used to be the case.

What happens if my energy supplier fails?

It’s not the end of the world for a customer if an energy supplier goes out of business. Ofgem is the energy industry regulator and will step in where a supplier has gone out of business. It will protect any existing balance that you have on your account with the supplier and also ensure that your home continues to have an energy supply. Ofgem will then find another supplier for the energy needs of any customers who have been affected. It does this not by simply selecting a supplier but giving them the opportunity to bid for customers so that you get the best possible deal on your new energy contract.

FAQs if your energy supplier goes bust

Do I have to stay with the new energy supplier? No, you’re not locked into a deal that you didn’t personally choose and you can leave at any time with no exit fees to pay.

Can I switch to a supplier of my choice straight away? Ofgem recommends waiting until the new supplier has been appointed and gets in contact with you – it will be much easier to then switch to the supplier of your choice after that point.

Do I have to take action to switch to the new supplier? Ofgem will handle the transition to the new supplier for you and you don’t need to do anything.

Am I likely to experience disruption in terms of my energy supply? No, everything should remain the same in terms of customer experience.

What happens if I have a prepayment meter? You can keep using this in the same way as you were before until a new payment device arrives.

What tariff will I get with the new supplier? In this situation customers are usually moved onto the ‘deemed tariff,’ which is designed to match the rate you were on previously. However, if your bills do go up you can leave and find a cheaper supplier.

Case Study: Toto Energy

Ceased trading: October 2019

Number of customers: 134,000

When Toto Energy went under earlier this year Ofgem released a statement reassuring the supplier’s customers that there was a safety net. It said credit balances were protected by the regulator and prepayment meters could be topped up as normal. It provided two key pieces of advice to customers: 1) take a meter reading as soon as possible so as to provide this to the new supplier and 2) wait until the supplier chosen by Ofgem makes contact before attempting to switch to a new supplier.

Although smaller energy suppliers have a higher chance of going bust their customers are completely protected by Ofgem. These new businesses represent an important tool for continuing to put pressure on the Big Six energy businesses to be more competitive and innovative. Customers who support them are helping to make the energy market more diverse and less expensive for everyone.

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