Energy bills will soar by hundreds of pounds within weeks after dozens of cash-strapped suppliers withdrew their cheapest deals from the market because of soaring wholesale prices.
Suppliers pulled their cheapest fixed-rate offers yesterday while two other companies went bust earlier this week, leaving half a million of their customers set to be moved to alternative suppliers within days by the regulator Ofgem.
So few cheap deals are available that Compare the Market, which specialises in comparing cheap deals, temporarily closed its energy comparison service last night.
The development is a huge blow to the competitiveness of the energy market, where in recent years dozens of small suppliers have battled to offer ever cheaper fixed-rate deals, while customers have been encouraged to switch providers when their tariffs ended. Now so few of these are available that most remaining tariffs now sit just beneath or on the level of the government’s mandatory price cap, above which suppliers cannot charge.
However, a new analysis suggests this cap will itself be raised by Ofgem by £280 by next April because of soaring wholesale costs. The latest cap, which takes effect next month, is £1,277 a year on average for a dual fuel deal but The Energy Shop, a comparison site, expects this to go up to £1,557 based on current wholesale prices.
“The wholesale prices mean that suppliers are starting to shut up shop and simply retain the customers they have,” Scott Byrom, chief executive of The Energy Shop, said.
“I would never normally advise people to stay on standard variable tariffs because switching was always the best thing to do, financially. But I’m no longer certain that this is the case. If you can still get into a competitive, long-term tariff then by all means move. But doing that is far, far, harder than it was only a few months ago.”
The rise in wholesale costs has left suppliers facing huge unexpected bills, which has placed a significant strain on smaller suppliers that operate with little slack. The wholesale cost of gas has risen 324 per cent over the past 12 months and 68 per cent in the past five weeks.
Energy firms buy wholesale energy in advance using futures contracts, but smaller suppliers have less cash to be able to do this, meaning they are more susceptible to sharp rises in wholesale costs.
Ofgem has been heavily criticised for allowing too many small companies onto the market with unsustainable business plans. A total of 29 firms have failed since 2016, with more than 2.3 million customers having to be moved to a supplier appointed by Ofgem. The cost of taking on customers from failed firms comes from a central pot of money that is ultimately covered by consumer bills.
As many as 39 suppliers are expected to fail in the next six to 12 months, according to the analyst firm Baringa.
This week People’s Energy, which is based in Edinburgh and supplies gas and electricity to about 350,000 homes and 1,000 businesses, and Utility Point in Dorset, which has 220,000 domestic customers, ceased trading.
A spokesman for Compare the Market said: “We will resume energy comparison as soon as we can be confident we can offer true comparison for customers.”