An energy firm with nearly 300,0000 customers has become the biggest electricity and gas supplier to go bust in the UK, fuelling concerns that more challenger firms could fold.
Spark Energy is the seventh supplier to fold this year amid pressure from rising wholesale costs and tough competition. The closure will mean the loss of more than 400 jobs at the firm’s headquarters in Selkirk in the Scottish Borders.
The company’s 290,000 customers were urged by the industry regulator to take meter readings immediately and not to attempt to switch, in order to avoid problems as the energy regulator appoints a new supplier.
The collapse comes just two days after the demise of Extra Energy, which had almost 130,000 home and business customers. Combined, the two suppliers accounted for 1.3% of all household energy accounts. About a fifth of all households are supplied by small and medium-sized firms, with the “big six” holding the rest.
The flurry of casualties will raise questions over how many other smaller suppliers are at risk of collapse because of pressure from rising wholesale costs. One clear sign of stress among challenger firms is that several suppliers owe £58.6m to watchdog Ofgem in unpaid renewable energy subsidies, after missing a 31 October deadline.
Along with Spark Energy, three companies, Economy Energy, URE Energy and Eversmart, were named by the regulator for failing to pay on time. A significant chunk of the missing payments may have been owed by Spark Energy and Extra Energy.
Another indicator is that several unnamed suppliers have missed payments under a separate green energy scheme, the feed-in tariff, leading to a £4.2m shortfall.
A statement on Spark Energy’s website offered no apology to customers but simply said: “[We] will be unable to continue supplying customers due to increasingly tough trading conditions in the energy industry.”
Chris Gauld, the chief executive of the 11-year-old company, said this week: “There is little doubt that these are difficult times in the industry. You only have to open the newspapers to see coverage of how the price cap and wholesale costs are impacting suppliers, big and small, across the country.”
He also claimed the government had “caused chaos in the industry” when the provisional level of the energy bill price cap was announced in September, despite firms knowing for months that the measure was coming.
The Energy Ombudsman said it had opened more than 800 investigations into customer complaints about Spark Energy over the past 12 months. Industry watchers said it was no surprise that Spark had gone bust, given it had publicly talked about struggling to meet the renewable energy subsidy payments.
Ed Reed, head of research at energy consultancy Cornwall Insight, said it was likely that other suppliers could cease trading soon.
Smaller players are more sharply exposed to rising wholesale costs, he said. “We’ve had really quite steep rises in wholesale prices over the past 12 months. Buying wholesale power is always a challenge, particularly for medium and smaller-sized suppliers.”
All energy bill-payers foot the cost of appointing new suppliers when companies collapse. The collapse of GB Energy in 2016, the second biggest to fail after Spark, cost all consumers a collective £14m.
Mark Todd, co-founder of comparison site Energyhelpline, said the industry was in crisis. “Suppliers are getting monumentally squeezed by rising wholesale prices, cold weather and the looming price cap, so it’s no surprise that yet another one has gone bust. We expect more casualties this winter,” he said.
Ofgem laid out new financial and customer service tests for new entrants to the sector this week, but they will not be retrospectively applied to the market’s existing 70-plus suppliers.
Gillian Guy, the chief executive of consumer group Citizens Advice, said: “The failure of two suppliers in a week is yet more evidence that this is a market where firms must have robust finances and sound business models.”
