Ofgem has only managed to redistribute £3.7 million in Renewables Obligation (RO) funds from failed energy suppliers in a period which saw half a billion pounds picked up by the rest of the market.
Since 2016 the regulator has recovered late payments from just four suppliers overall, with the vast majority (£3.4 million) coming from GB Energy, which left the market owing £7.1 million.
Mutualisation was first triggered in 2018 and has occurred every year since. In total £527 million was owed by retailers, many of which have exited the market.
Speaking to Utility Week about the issue Ecotricity chief executive Dale Vince said he was not surprised at the low amount collected from Ofgem from the failed suppliers.
He added: “They went bankrupt because they didn’t hedge and they didn’t have any assets behind them so that’s not a surprise. But half a billion pounds in mutualised ROC payments? That’s a monster and a failure of regulation, actually.
“On the one hand, to allow these companies to come in and trade in the circumstances that they did. But also I think mutualisation is just fundamentally wrong because it’s heaping the cost of failure on the companies that haven’t failed and on the customers as well. This is paid for through energy bills, ultimately, and so the whole thing is just completely wrong.”
Asked about what reforms he would like to see to prevent such figures from amassing again, Vince said the “horse has bolted”.
He continued: “Talking of solving this problem now is actually too late, it’s not a problem now because half the market went bankrupt. The part of the market that was badly funded and badly run is gone. And so I think the risk of future mutualisation events anywhere near this scale has gone.
“And there’s a danger that if Ofgem reacts to this, it’s an overreaction and that it makes cash flow issues for those that are still left standing.”
Last year a High Court judge ordered failed energy retailers to hand over unpaid RO payments to Ofgem in what the regulator labelled a “significant outcome”.
The case sought to determine whether insolvent retailers are liable for monies owed both via the RO and customer credit balances.
Mr Justice Zacaroli ruled that Ofgem is a creditor of these companies for liabilities due under the RO and that it can therefore claim for owed payments from the insolvent estates.
He further ruled that Suppliers of Last Resort (SoLRs) are also entitled to be treated as creditors for the credit balances they have honoured for the customers of failed suppliers, meaning they too can claim back costs from the insolvent retailers.