Spark Energy and Extra Energy collapse, but who foots the bill?

It's been a bad week for energy suppliers, as two more small companies have gone bust leaving almost 400,000 customers in limbo.

Ofgem have been quick to appoint relief suppliers for the affected customers. Scottish Power will take Extra Energy's 108,000 customers, and Ovo Energy will supply the 290,000 customers from Spark.

The news comes just days after industry watchdog Ofgem proposed a set of new rules to test the financial health and customer service standards of new suppliers wanting to enter the UK market.

At the time of the rules announcement, Ofgem had said it was investigating both suppliers for non-payment of their Renewables Obligation.

Extra energy fold

With 108,000 domestic and 21,000 business customers, the collapse of Extra Energy was announced on November 21st.

The company blamed its failure on the recent price cap introduced by Ofgem, saying it was 'making the market unviable'.

Speaking after the collapse, Chief Executive Nick Read claimed that the company had tried to restructure, to reduce cost and even to merge to maintain viability of the business. However, in light of the regulatory change they saw 'no long term investment opportunity in the UK'.

Ofgem appointed Scottish Power to take on the affected customers. The big six supplier has said it will offer a competitive tariff and will 'honour all outstanding credit balances'.

Small supplier loses its spark

Spark Energy supplied around 290.000 customers before it collapsed. The company announced its closure, citing 'increasingly tough tradition conditions' as the reason for its demise.

Undoubtedly a contributing factor was a debt owing to the UK's Renewables Obligation Scheme of £14.4m. Payments are made to the scheme to fund renewable energy projects, and it is mandatory for all UK energy supplier to pay into the fund.

Ofgem have appointed a new supplier to take on their customers, advising those supplied by Spark Energy to take a meter reading, but not to switch to another supplier.

Subsequently, Ofgem have appointed Ovo Energy to take care of the ex-Spark customers. Although the company will serve the customers, they have said they plan to keep the Spark name as well as their existing staff, and customers will remain on the same tariffs too.

Seven failed suppliers in one year

Spark and Extra become the sixth and seventh energy suppliers to go bust this year. Other firms collapsing include Usio, Iresa, National Gas and Power, Future Energy and Gen4U, with failures affecting an estimated 670,000 customers.

In every instance, Ofgem have been quick to step in and implement their safety net procedure. This guarantee means all credit held by the failed energy firms will be honoured by the new suppliers.

Who is the real loser?

Although the customers of Spark and Extra are going to be looked after by their new suppliers, a question remains over the unpaid bill to the Renewables Obligation.

Ofgem have said that the debt will be shared among other suppliers in what they call a 'mutualisation process'. However, this could be just the tip of the iceberg.

Ofgem have revealed that the total debt to the Renewables Obligation fund runs to £58.6m, with a number of suppliers implicated with not paying their bills.

Among the firms struggling with their green tax payments, Ofgem have named Economy Energy, Eversmart and URE Energy.

Should all firms go bankrupt rather than paying their debt, the cost to the consumer could be substantial. Even shared among existing suppliers, finding almost £60m is going to be a hard task, and one which will ultimately impact the cost of our energy supply.