Is there a fairer way to pick up the cost of failing suppliers?

Mutualisation… Sounds like a friendly, inclusive sort of term. Something to embrace rather than shy away from.

Is there a fairer way to pick up the cost of failing suppliers?

Mutualisation… Sounds like a friendly, inclusive sort of term. Something to embrace rather than shy away from.

Sadly, for large energy consumers, it’s a term likely to create disquiet and concern, especially when paired with Renewables Obligation (RO).

That’s because over the past two years, more than £117m in RO mutualisation costs have been added to customer energy bills.

RO Mutualisation confirmed for third year

And now it’s just been confirmed that 2019/20 will make it a third year, with an additional £32m due to be tagged onto invoices as another one-off RO Mutualisation charge. That translates to £0.11/MWh.

This extra charge has been created to recover any shortfall in RO payments once they exceed £17m (the current threshold). It comes about when suppliers go bust before they pass on the charges they’d already collected from customers to Ofgem.

In the last year alone, Solarplicity, Eversmart, Rutherford, Toto, Breeze, Gnergy, Go Effortless and Tonik have all ceased trading. And according to Ofgem, three other suppliers still haven’t paid their RO bill.

Costs significant for large consumers

Now if we look at these mutualisation costs as a percentage of the total annual RO scheme cost of around £5.9bn, it may not seem like a lot. ‘Chicken feed’ some may say.

But the thing is, you have to sell an awful lot of chickens to pay this extra share if you’re a business consuming in the terawatts every year, which many of our customers are.

Whenever I meet someone new to the way in which the non-commodity elements of energy costs are billed, it can take quite a bit of time to get them to understand how mutualisation works.

Not because they aren’t bright or quick on the uptake. But because they can’t quite fathom how it can be fair.

Paying to cover others losses

To use an analogy, if a businesses ceases trading, other businesses aren’t then asked to make payments to cover any loss in VAT due to HMRC.

What many of our customers ask is, surely there must be a better way? For example, here are just two of the suggestions customers have recently shared with me:

Could new suppliers be better regulated? In 2019 alone, nine went under. So taking a more interventionist approach where appropriate seems sensible, especially when new or struggling suppliers are collecting money on behalf of third parties.

Could the regulator take out credit insurance, in the same way that suppliers do on behalf of large consumers? Then if they go bust, the RO shortfall could be covered by insurance rather than other suppliers/customers.

Share your thoughts

There’s likely to be other approaches worth considering. We’d therefore be interested to hear your thoughts and get some debate going.

So please do share your views and comments – Get in touch or if you're an existing customer, you can speak to your Client Lead.

We live in challenging times, so sadly more suppliers are likely to struggle. The issue of mutualisation is therefore only likely to escalate. So let’s see if we can find a fairer solution before the bills start mounting up for all of us.

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