In November 2021 the Government appointed administrators for Bulb Energy Limited and provided facilities to cover Bulb's financing needs. This box described how we accounted for transactions with Bulb in our March 2023 forecast.
Following sharp rises in wholesale gas prices in the second half of 2021, a total of 30 energy supply companies have failed. The customers of 29 of these were transferred to other suppliers under OFGEM’s supplier of last resort (SoLR) process. The largest company, Bulb Energy Limited, instead entered the special administration regime (termed the Bulb SAR) in November 2021. The Government provided the Bulb SAR administrators access to a financing facility, largely to cover the operating losses of the Bulb SAR. The ONS has classified the Bulb SAR as a public corporation, but has not yet incorporated it into the public sector finances statistics. It has also classified payments under the financing facility as capital transfers (treated as transfers from government to the private sector during its period in administration, pending Bulb’s reclassification in the statistics).
In December 2022 the administrators reached a deal with Octopus Energy Limited to transfer Bulb’s 1.5 million customers. A second financing facility has been put in place to provide cover for Bulb’s obligations under the sales process. This will mainly cover the costs of purchasing energy on the wholesale markets and runs to the end of March 2023. Pending an ONS decision on transactions under this second facility, we have treated them as capital transfers too.
In our November forecast we included a total of £6.5 billion in capital transfers from government under these two facilities: £2.0 billion for the first facility (split roughly evenly across 2021-22 and 2022-23) and £4.5 billion for the second facility. In this forecast we have revised both estimates down. For the first facility, we have reduced transfers to £1.1 billion up to March 2023. There will be further transfers to and from the Bulb SAR before the SAR order ends, but we do not expect these to be material. For the second facility, the Government has reduced the allotted sum for the facility to purchase energy from wholesale markets from £4.5 to £2.9 billion as wholesale energy prices have dropped. This represents an upper limit for these payments, and we have assumed an underspend of £1.0 billion, meaning we expect payments under this facility to total £1.9 billion and total gross payments to the Bulb SAR to be £3.0 billion.
The money made available under the Government’s second facility is used to purchase energy on the wholesale markets. This energy will then be sold to the former Bulb customers at prices close to the Ofgem price cap. The proceeds from these sales will ultimately be returned to government at some point between September 2024 and September 2025, and the amount to be returned is uncertain. So, as we only record transactions when there is sufficient certainty about their size and timing, we have not included any estimates in this forecast. More details are likely to be forthcoming before our next forecast so we will revisit these assumptions again then.
It is possible that government will recoup its outgoings via this payment – indeed Octopus is quoted as stating this will result in a profit for government of around £1.2 billion a This would mean the government essentially breaks even across both financing facilities. And the Government has stated its intention that the Bulb SAR will ultimately be fiscally neutral.b This would involve recouping any remaining shortfall by issuing a ‘shortfall direction’ under the Energy Act 2011, which would place a levy on the energy supply industry. Any such decision will only be reflected in our forecasts after it has been made.
This box was originally published in Economic and fiscal outlook – March 2023