Energy customers face £2.7bn or £94 each in extra charges to cover the cost of failing energy suppliers, the National Audit Office estimated today.
This is the extra cost since June 2021 from the 28 failing suppliers unable to carry on trading amid rising wholesale prices this past year.
The national auditor blamed the supply failures on rising wholesale prices but said it also found failings with regulator Ofgem’s monitoring process.
“The largest component of this cost is for suppliers buying wholesale energy above the level of the price cap for customers from suppliers that had failed,” the NAO said in its report today.
Nearly 2.4 million energy customers had to be transferred to another energy company under Ofgem’s supplier of last resort process, which cost the bill payer £2.7bn including missed payments to support renewable power, the national auditor said.
Customers have so far paid on average an extra £30 per month to cover these failing suppliers as a result of being moved to a higher tariff, according to Citizens Advice.
Despite the energy price cap, which was introduced by Ofgem in 2019, the average household energy bill has risen by 78% since 2019 to £1,971.
Wholesale gas prices have soared in the past year, rising six-fold between February and December 2021, forcing ailing suppliers such as Bulb Energy out of the market.
The government has earmarked £1bn to run the energy company through to next year, after spending £900mln on an administrator. These numbers are not included in today's NAO estimate.
The NAO recommended that the Department for Business, Energy and Industrial Strategy and Ofgem should devise a process to model new market interventions, such as the energy price cap, which was meant to limit the amount an energy supplier can charge customers on a default tariff.
It has asked Ofgem to report performance on price regulation, market stability and competition annually after accusing it of failing to "stress-test" what impact the cap would have during sustained wholesale energy price increases.
The NAO criticised Ofgem for operating a “low bar” for licensing new suppliers, saying it failed to undertake “detailed scrutiny of their financial position”. It said suppliers with less available cash and liquidity were unable to compete with the wholesale price increases.
The government is expected to evaluate the cost and benefits of the price cap and may consider alternatives.
NAO head Gareth Davies said: “Consumers have borne the brunt of supplier failures at a time when many households are already under significant financial strain having seen their bills go up to record levels. A supplier market must be developed that truly works for consumers.”