Small energy companies risk going bankrupt as a result of the financial shock

Thousands of homes could lose their energy supplier in the coming months as a result of a financial shock looming over the industry’s smaller companies.

Suppliers are due to pass on millions of pounds’ worth of renewable energy subsidies, collected via energy bills, to the energy regulator, Ofgem, by the end of the month.

This deadline has in the past proved fatal for financially unstable energy suppliers, and it is feared that a string of collapses may follow in the coming months. Suppliers have until 31 August to pay their share of the renewable energy subsidies, or can opt to pay the amount owed – plus interest – by 31 October.

In the past week, Solarplicity has gone bust, leaving 7,500 homes without a supplier. URE Energy was stripped of its supplier licence for failing to pass on its renewable energy funds from last year’s deadline. In total, 14 suppliers have crashed out of the market since the start of last year, and some predict the same number will fail in the years ahead.

A spokeswoman for Ofgem said that given the “huge growth in the number of suppliers” it expects there to be a “period of consolidation” as some exit the market or merge. The energy market has grown rapidly, from 12 suppliers in 2010 to 70 last year, thanks to policies designed to encourage startups into the market as possible.

“Given the large number of suppliers, it’s also more likely that one may collapse – but Ofgem’s safety net will ensure that their customers are already protected,” she added.

The regulator has appointed EDF Energy to take on Solarplicity’s customers but industry sources fear that the “bailout” will raise costs for the rest of the industry.

“A number of suppliers have raised concerns with Ofgem on how costs of insolvent companies are effectively passed on to the customers of other suppliers,” said one industry source, who asked not to be named.

“Last year over 30 suppliers didn’t pay what they owed, and this year market conditions are even tougher. Several of those who couldn’t pay have since gone under and logically, we would expect this number to rise,” the source added.

According to official Ofgem documents, seen by the Observer, Solarplicity’s customers were owed over £3.5m in outstanding credit balances when the company went under. The sums will be paid for by other suppliers in the market, and ultimately reclaimed through energy bills.

A spokesman for the Energy Ombudsman said: “We have been aware for some time of the issue of Solarplicity failing to put things right for customers and former customers, including failing to make the necessary goodwill gesture payments and refunds.

“Solarplicity’s conduct in recent months, culminating in its collapse, has caused considerable financial pain for a significant number of consumers and ultimately for our organisation as well,” he said.

Solarplicity collapsed less than two weeks after it sold off around 43,000 customers to rival newcomer Toto Energy. The timing of the sale, and high level of outstanding credit balances among its remaining customers, raised suspicions in the industry that the company sold off its “valuable” customers and left its debts for Ofgem to cover.

A spokesman for Solarplicity said: “This is simply not the case. Solarplicity took extensive legal and insolvency advice in order to ensure the proper execution of this process and the best outcome for customers and creditors.”