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Energy crisis: creating lots of small suppliers was always a bad idea - now taxpayers will foot the bill

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A handful of small energy suppliers in the UK have collapsed in recent weeks because they have been caught out by the massive rise in wholesale gas and electricity prices – and dozens more are in danger of going the same way. If they fail, the government is hoping that stronger energy suppliers will take over their many thousands of customers under the “supplier of last resort” mechanism that exists for such situations.

But this may not happen because of price caps that would force the stronger suppliers to sell energy to these new customers at a loss. Instead, the government faces the prospect of having to take over the failed suppliers, potentially costing the taxpayer millions of pounds. So what is the best way forward?

The UK energy regulator, Ofgem, started encouraging small energy suppliers to enter the market from 2010. This was ostensibly to counterbalance the power of the big six energy suppliers. Whereas these companies are “integrated”, meaning they not only supply customers but also generate the electricity and gas in the first place, the new entrants were purely suppliers.

With no more assets than a kitchen table, a laptop and £350, anyone could now become a retail energy company. Scores of small firms made promises that they would save customers money, yet they were exposing themselves to the wholesale energy market with neither the knowledge nor the capital to hedge their risks.

It has not always gone smoothly. In my research, I have seen widespread problems with smaller suppliers: poor customer service, bills that don’t make sense, and........

© The Conversation

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