UK energy crisis hell as half of remaining British firms ‘about to go bust’

Energy crisis: Woman has to starve in order to stay warm

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Accountants at Price Bailey checked the credit risk scores and balance sheet information of all domestic electricity and gas licensees registered with Ofgem, the regulator for electricity and gas markets. Their research found that of 22 remaining suppliers, excluding the Big Six and two businesses with suppressed risk scores, 12 have negative assets on their balance sheet.

This means that 55 percent of remaining electricity and gas suppliers are deemed to be technically insolvent.

These businesses are vulnerable to going bust – when their cash flow becomes insolvent.

This occurs when the businesses are unable to make payments to suppliers or lenders.

Of those 12 which were found to be technically insolvent, six are in the “Maximum Risk” category according to their Delphi Score.

Ten of them have a Delphi Score indicating “Above Average Risk” or higher.

The Delphi Score is used as a way to measure and compare the strength, performance and creditworthiness of businesses.

Businesses deemed Maximum Risk find it difficult to access funding, and are highly likely to dissolve in the next 12 months.

Matt Howard, Partner at Price Bailey, commented: “The winter of discontent for the energy supply sector is unlikely to end soon.

“Around half of suppliers have already gone bust and at least another half are technically insolvent and at imminent risk of collapse. These businesses will find it almost impossible to access extra funding unless directors provide personal guarantees, and few are likely to do so in the current climate.

“We are seeing a domino effect. Every time a small energy retailer goes bust, that increases the financial strain on the rest of the ecosystem, making those businesses more vulnerable to collapse.

“It is possible that only one or two of the challenger brands will be left standing alongside the big six this time next year.”

At the start of 2021, roughly 70 energy companies were supplying energy to UK households.

Since Price Bailey first looked at the credit risks cores of energy suppliers in November 2021, another seven suppliers have become insolvent.

The accounting company says that while the customers of failed suppliers have been transferred to surviving suppliers, many of the surviving suppliers are on the verge of collapse.

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This means that many customers face the inconvenience of being transferred multiple times, resulting in significantly higher bills.

Mr Howard said: “The business models of many of the small suppliers are not sustainable in an era of rising wholesale prices.

“Aggressively undercutting to gain market share when prices are low is a risky strategy.

“Many of the smaller businesses which are going bust are failing precisely because they did not buy energy in advance, opting instead to buy wholesale energy on the “spot” market.”

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