UK energy crisis as half British firms 'about to go bust'

Price Bailey, the accounting firm, have reviewed all the financial information of the remaining British energy firms and now believe that half are about to go bust, to go out of business.
The partnership researched the credit risk scores and balance sheet information of all domestic electricity and gas licensees registered with Ofgem, the regulator for electricity and gas markets. They found that of the 22 remaining suppliers 12 have negative assets on their balance sheet.
This means that 55 percent of remaining electricity and gas suppliers are deemed to be technically insolvent, and that they will go bust when their cash flow turns negative. This happens when the business is unable to meet its commitments.
Using the Delphi Score, an analytical tool designed to determine how credit worthy a company is, 12 companies were found to be technically insolvent, six in the “Maximum Risk” category. Worryingly ten of them have a Delphi Score indicating “Above Average Risk” or higher.
A business with a Maximum Risk score will find it difficult to access funding, and are highly likely to dissolve within the next year.
Matt Howard, Partner at Price Bailey, commented: “The winter of discontent for the energy supply sector is unlikely to end soon.
“Around half of suppliers have already gone bust and at least another half 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.
“We are seeing a domino effect. Every time a small energy retailer goes bust, that increases the financial strain on the rest of the ecosystem, making those businesses more vulnerable to collapse.
“It is possible that only one or two of the challenger brands will be left standing alongside the big six this time next year.”
Before the energy crises began a little over a year ago there were around 70 energy companies supplying UK households. In the last three months more than 10 suppliers have gone out of business with many of those companies who have received customers from other failed businesses likely to fail themselves.
This means that many customers face the inconvenience of being transferred multiple times, resulting in significantly higher bills.
Mr Howard said: “The business models of many of the small suppliers are not sustainable in an era of rising wholesale prices.
“Aggressively undercutting to gain market share when prices are low is a risky strategy.
“Many of the smaller businesses which are going bust are failing precisely because they did not buy energy in advance, opting instead to buy wholesale energy on the “spot” market.”
The news that half British energy firms are ‘about to go bust’ will be of concern to customers, many of whom find themselves transferred to suppliers they did not choose to be with.


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Peter McLaren-Kennedy

Originally from South Africa, Peter is based on the Costa Blanca and is a web reporter for the Euro Weekly News covering international and Spanish national news. Got a news story you want to share? Then get in touch at [email protected]

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