A small energy supplier has raised concerns about the effects of the “increasing and unexpected” cost of mutualisation and the safety net.

Speaking on behalf of Toto Energy to Utility Week, Tom Nicholas, operations manager, said mutualisation adds “uncertainty”.

He said: “The increasing and unexpected cost of mutualisation and the safety net add uncertainty and as more suppliers fail there is increasing pressure on margins for long term fixed tariffs we have already sold.

“The financial impact of supplier failures in terms of mutualisation and safety net costs are well covered, less well documented are the less tangible effects that are disproportionately impactful on small suppliers, for instance in customer contact, staff retention, morale and recruitment.”

The mutualisation process came under the spotlight at the end of last year, after an “unprecedented” number of suppliers failed to pay their renewables obligation (RO) payments.

If the outstanding payments exceed a certain threshold known as the relevant shortfall, the mutualisation process is activated. The relevant shortfall is £15.4 million for England and Wales and £1.54 million for Scotland.

Ofgem confirmed in November that the shortfall was £58.6 million.

In line with the RO orders, suppliers who discharged part of their obligation will be contacted to make quarterly payments to make up the shortfall, in proportion to their obligation.

Among the suppliers named by the regulator as having failed to pay their RO payments, Economy, Extra, Future, Gen4u, Iresa, Snowdrop and Spark Energy have all ceased trading.

Meanwhile two other non-compliant suppliers, URE Energy and Eversmart, were ordered to deliver all outstanding payments by 31 March 2019 through monthly instalments.

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