Over the weekend, GB Energy, a new entrant supplier that had been operating since 2014, ceased trading. There’s some discussion in the media about the wider implications for the energy market, so we wanted to share our point of view on what's going on.
We regret GB’s demise because it is a blow to competition. Small suppliers have helped reduce energy costs for UK homes, with the cheapest tariffs falling from around £1,000 in 2014 to £800 in 2016. That’s a good thing.
However, GB offered fixed price energy to consumers and didn’t buy fixed price energy in the wholesale market. Energy costs rose and they couldn’t keep their promise. They were gambling on energy prices staying low but they went up.
Responsible suppliers, large and small, do not do this. Energy prices are volatile. There are many small suppliers, like Bulb, who understand this and are operating their businesses in a sustainable way.
Note for GB customers: the Ofgem ‘safety net’ will secure your supply and protect any credit you have with GB. Head to the Ofgem site to get all the details.
There appear to be three main reasons why GB became the first domestic supplier to go out of business in a decade.
Like many other new entrant suppliers GB sold a 12-month fixed tariff.
Despite selling energy at a fixed price for 12 months, GB failed to buy the equivalent energy at a fixed price in the wholesale market. When the price of energy went up, they were forced to buy energy at a much higher price and incurred the losses that caused them to shut down.
GB grew at an unsustainable speed. The extremely low price they offered resulted in growth of over 100,000 customers in two years. Not only did that stretch the business financially, but it also stretched the business operationally, with a significant number of complaints recorded by Citizens Advice.
What makes Bulb different?
Our single, variable tariff, means we can adjust the price of our energy if wholesale costs change significantly. We have an approach to pricing that follows the wholesale energy market closely. When it goes down, we’re quick to pass those savings on to our members. When it goes up, we hold on for as long as possible but increase when we have to. (As we did just recently). We think that’s the fair way of doing things and we always try and clearly communicate when there are changes in the market.
We have two ways of insulating our members from spikes in the wholesale energy market. First, we have power purchase agreements with independent renewable generators. That means we commit to buying their energy at a fixed price over the medium term, which gives both parties price stability. The second is hedging. We buy energy from our trading partners three months in advance to protect our members from spikes in the wholesale price of energy.
We’ve also taken care to grow our membership at a steady rate. We’ve seen too many other suppliers grow quickly, start delivering poor service and break their promises to customers, which isn’t the Bulb way of doing things. Operating in a sustainable way means we’re able to increase demand for renewables while continuing to provide an excellent service to our members.
As always, you’re welcome to email us at firstname.lastname@example.org, give us a call on 0300 30 30 635 or comment below if you have any questions.