Amid worsening wholesale energy prices, the financial position of the UK domestic electricity and gas supplier sector is worsening with 60% of remaining smaller energy suppliers “technically insolvent”, says accountancy firm Price Bailey.
Despite the energy price cap being increased in April to £1,971, energy suppliers are continuing the struggle financially with negative assets recorded on the balance sheets of 12 (60%) of the 20 remaining suppliers registered with Ofgem. This excludes the Big Six and two businesses with suppressed risk scores.
Businesses with negative net balance sheet assets are deemed to be technically insolvent and as a result, vulnerable to going bust. This is of particular concern with high wholesale prices having led to nearly 30 suppliers collapsing between September 2021 and July 2022, along with Bulb entering Special Administration.
Of the 12 suppliers that are regarded as technically insolvent, 10 have a Delphi Risk score of above average or higher, and six are in the maximum risk category.
Businesses situated in the maximum risk category find it difficult to access funding without personal guarantees from directors and are thus highly likely to be subject to winding up petitions or intention to dissolve notices in the next 12 months, says Price Bailey.
“Energy suppliers and consumers are facing a winter of discontent,” said Matt Howard, partner at Price Bailey. “Over half of smaller suppliers have already gone bust and nearly two thirds of the remainder are technically insolvent and at imminent risk of collapse. These businesses will find it almost impossible to access extra funding unless directors provide personal guarantees, and few are likely to do so in the current climate.”
“The increase in the price cap, while providing some relief to embattled energy suppliers, has not been enough to compensate for the rising cost of energy on global markets since April. Consumers are unlikely to have much sympathy, but energy suppliers cannot sustainably supply energy to customers for less than they have paid for it.”
The increase in the energy price cap aims to reflect the continued high prices and is designed to help suppliers recoup the cost of wholesale prices from customers, therefore allowing them to continue to operate, without their profits growing beyond 1.9%. However, with suppliers continuing to struggle financially, it could create further concerns for a price cap increase in the coming winter months.
All eyes will now be on the announcement by Ofgem on 26 August, and the government as calls for further support measures continue to grow both for energy suppliers and consumers.
