19/11/22: It's lights out for Bulb

What happened?

Green energy supplier firm Bulb, was put into a special government handled administration, after it collapsed in November 2021.

The collapse came after a sharp rise in the cost of wholesale energy gas last year.

The firm has now been bought by rival Octopus Energy. However, companies, such as Scottish Power and Eon are threatening to launch a legal challenge over inadequate transparency surrounding the agreement.

Figures show that it could cost £6.5bn to taxpayers.

Image Courtesy of Pixabay, Pexels

Why have I chosen this story?

Energy is important to us all. Over the past 2 years or so, I've been hearing about many energy suppliers going bust and about the rise in the cost of wholesale energy prices.

I think this story is fitting for the economic situation the UK is currently in. Not only are people being affected by paying more energy bills, even energy suppliers are going bust. Adding high inflation and interest rates, as well as the war in Ukraine, and you have suppliers and the consumer paying for this all important commodity.

So, I thought it would be interesting to look into this story and understand it on a deeper level.

Some context:

Let's turn back the clock a little...

2015:

Bulb was founded by Amit Gudka and Hayden Wood. It introduced the industry's first 'green' energy firm and challenged the traditional giants that dominated the market, such as British Gas and EDF Energy.

Image Courtesy of Stas Knop, Pexels

Gudka left the business before its collapse to set up a battery storage company, whilst Wood now works as a venture partner for Giant Ventures Wood even came under fire over his £250,000 salary, after it went bust and which was funded by taxpayers.

Quick side -note- How do traditional energy suppliers differ from 'green' energy suppliers?

It all goes down to how they produce the energy they have. Traditional energy firms get their energy from non-renewable sources, like coal and gas, whilst green energy firms get it from renewable sources, like wind and solar power. Green energy firms have green energy tariffs, which works by the supplier 'promising to match some or all of the electricity you use with renewable energy, which it then feeds back into the National Grid.'

Taken directly from Bulb's website: "We provide our members with 100% renewable electricity from solar, wind and hydro. And our gas is 100% carbon offset too. We offset the emissions from the gas we supply by supporting carbon reduction projects around the world. We get the electricity we supply from the wholesale market."

2018:

Things seemed to be going well for the company, it was even seen as one of the 'fastest growing energy suppliers' in the UK. Their customer base soared from 2000,000 in 2017, to over 870,000 in 2018. They had even secured a £60m investment from Magnetar Capital and DST Global, two private equity firms.

As of 2022, they have approximately 1.5m customers.

2021:

If we fast-forward to the year above, the price of wholesale energy was soaring. With the UK and many nations coming out of lockdown, the desire to get back life as it once was, boomed. This caused an increase in the demand for energy, specifically oil and gas. The demand outweighed the supply available, and this then meant an increase in the price of the energy supply that was at hand.

Image Courtesy of Zukiman Mohamad, Pexels

Not good for energy suppliers buying energy from energy firms (it meant they had to pay more than they usually would to get their energy, so they could supply it to their customers), not good for customers who get their energy from energy suppliers (it means higher energy bills-the higher price to purchase the energy, trickled down to the consumer), and especially not good for energy suppliers who failed to buy their energy far enough in advance (when the price for oil and gas was also cheaper)-this was the case for Bulb.

In November 2021, the firm was effectively nationalised, after it was put into a special handled government administration. According to figures by the Office for Budget Responsibility (OBR), taxpayers will be paying more than £200 for every household in the UK, as a result of the firm collapsing.

In 2020, the UK Energy industry contributed to around 2.1% Gross Value Added (GVA) to the UK GDP.

Analysis (S.W.O.T):

S- A bailout isn't a good thing per se. It has meant that the taxpayer has essentially been contributing to the survival of the firm, by paying more for our energy bills. However, Bulb has now been bought, hopefully the new firm won't crack under the economic pressure...

W- Out of all the energy suppliers that have gone bust these past several months, Bulb's is the biggest and frankly, the most shocking. I mean this not just in terms of the amount of customers they have, but also because it's the largest green energy supplier. The co-founders said, "Every new member, means a greener UK". However. this does not boast of good news for the energy supplier. Will it dampen the faith of greener energy suppliers becoming giants within the industry? I don't think so. However, it does go to show how buying your energy in advance can be an important factor in deciding whether or not you survive as a company or not.

Image Courtesy of Pixabay, Pexels

O- Bulb has been acquired by their rival. Octopus Energy is another green energy supplier that was also founded in 2015. It means one less rival for them within the sector. Octopus also took over 580,000 customers from Avro Energy, after they went bust too. It looks like Octopus Energy could become the biggest energy suppliers in the UK...

T- The price for wholesale gas is still high, who knows when it will drop back down to suitable levels? The energy bill for a typical household, is set to rise to £3,000 from April 2023. However, Chancellor Hunt has introduced measures to support the most vulnerable, but many say that it is not enough.

Jeremy Hunt has also increased windfall taxes on the profits of gas and oil companies from 25% to 35%, and has extended them until 2028. Hunt has introduced a temporary 45% tax on electricity generators and such measures are set to raise £14bn in 2023. This means that more money will be going to the government. Could this affect energy firms operating in the UK? Will it encourage them to look elsewhere to do business?

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My Thoughts:

I was pretty shocked when I was looking into this story. A green energy firm going bust, whilst traditional energy suppliers roll in the profits? Oh dear. However, I think many energy suppliers will use Bulb as a case study for how not to run their own company.

I'm sure Ofgem will also take lessons from Bulb's collapse, and could even introduce stringent regulation into the sector.

To answer my questions under the 'T' (Threat) section, I think that energy suppliers won't be looking elsewhere. It seems like such suppliers/firms have even welcomed the new proposals under the Autumn Statement 2022, as the market didn't really budge at the news.

And just to make sure you know, 'S.W.O.T' stands for: Strength, Weakness, Opportunity, Threat.

That's it for this week, I hope you have enjoyed it! What are your thoughts on the story? Could we be seeing even more energy suppliers collapse?

Useful Links:

- 'Bulb: Britain's seventh biggest energy supplier collapses into administration'- https://www.youtube.com/watch?v=6EPey5gOdao

- 'Energy Crisis: Should Britain Just Nationalise Energy?' - https://www.youtube.com/watch?v=tlH5tgT1ilc

- 'Massive batteries to become more important as UK transitions to green energy'- https://www.youtube.com/watch?v=X-gJdy_EyvI