Bulb has confirmed it will enter the special administration regime (SAR), becoming the first energy supplier to do so.
The company, which serves 1.7 million customers, has further confirmed it is taking steps for parent company Simple Energy to also enter administration.
It will be the single biggest failure the market has seen, eclipsing that of even Avro Energy which failed earlier this year with 580,000 customers.
The SAR is a contingency measure requiring approval from the business secretary. It allows a retailer deemed too big to enter the supplier of last resort (SoLR) process to be run temporarily by a special administrator, ensuring an uninterrupted supply for customers.
In a memorandum of understanding published by Ofgem in 2017, the regulator explained that the special administrator, unlike an ordinary administrator, has an obligation to consider consumers’ interests as well as those of creditors.
While the process to appoint special administrators is not yet complete, the company expects them to be appointed shortly.
A Bulb spokesperson said: “We’ve decided to support Bulb being placed into special administration, which means it will continue to operate with no interruption of service or supply to members.
“If you’re a Bulb member, please don’t worry as your energy supply is secure and all credit balances are protected.”
The announcement by Bulb marks the first time the process has been used in the energy market as a large supplier has never previously become insolvent.
An Ofgem spokesperson said: “Customers of Bulb do not need to worry – Bulb will continue to operate as normal.
“Ofgem is working very closely with government. This includes plans for Ofgem to apply to court to appoint an administrator who will run the company.”
The spokesperson added it would be asking to appoint consultancy Teneo as the special administrator.
A government spokesperson meanwhile confirmed it had agreed with the regulator on the appointment of special administrators for Bulb and that it was taking this forward in the “quickest possible timeframe”.
“The special administration regime is long-standing, well-established mechanism to protect energy consumers and ensure continued energy supply when a supplier fails,” they added.
About Bulb
Founded in 2015 by Amit Gudka and Hayden Wood, Bulb rose quickly to be one of the industry’s major players and ultimately secured a 6% market share.
Earlier this year it posted a £63 million pre-tax loss in its latest financial results for 2020, an improvement on the £129 million loss in 2019.
Bulb has also expanded overseas and established itself in France, Spain and the US state of Texas.
As these overseas businesses are separate from Bulb UK, they are not immediately affected by the retailer entering special administration and will continue trading.
In a blog published in the wake of the company’s decision, Bulb said it had received “lots of interest” from investors when it began exploring fundraising options earlier this year.
“However, the rising energy crisis in the UK and around the world has concerned investors who can’t go ahead while wholesale prices are so high and the price cap—designed to protect customers—currently means suppliers provide energy at a significant loss,” it explained.
The company added that wholesale prices have skyrocketed and continue to be extremely volatile, with the gas supply shortage combined with lower exports from Russia and increased demand meaning they remain “high and unpredictable”.
“Prices have hit close to £4.00 per therm recently, compared with 50p per therm a year ago. We’ve always been big supporters of the idea of a price cap to protect customers, but the current price cap is set at a level around 70p per therm, well below the cost of energy,” it continued.
Bulb’s demise means that in total, more than 4.2 million customers have seen their supplier fail due to the continuing energy crisis.
This includes 24 suppliers exiting the market via the SoLR process, leaving more than 2.5 million domestic customers to be picked up elsewhere.
Responding to the news Energy UK’s chief executive Emma Pinchbeck warned there could be similar exits ahead for the sector.
She said: “The news underlines the huge difficulties facing energy retailers at present.
“Record wholesale prices mean that suppliers are losing millions of pounds serving their customers right now and so, as well as Bulb planning to enter special administration, we cannot rule out well run, financially responsible companies exiting the market – in addition to those that have already left.
“The first use of the special administration regime also shows that, in the current circumstances, suppliers are in no position to take on large numbers of new customers.”
Pinchbeck said the immediate priority is to ensure there is enough support for customers over the winter and beyond, with bills likely to rise further in 2022.
“Once through this period, the government and Ofgem need to work with our industry to enable a sustainable retail market in future – one where suppliers are not just able to stay in business but can invest and innovate in order to support their customers through the changes net zero will involve,” she added.