Bulb bailout exposes UK’s pseudo power market | Daily News Byte


LONDON, Dec 23 (Reuters) – Greg Jackson has done it again. A year after Octopus Energy’s boss added 580,000 customers to his UK energy group by scooping up bust Avro Energy, he has tripled that number by acquiring Bulb. That’s great for the octopus, but it makes the “private” British power market even weirder.

Bulb is the biggest of dozens of flaky British power suppliers that chose not to hedge their future costs when energy prices were cheap. When gas prices went up last year, he collapsed. The UK government, which helped create the problem by allowing poorly capitalized and poorly managed companies to compete for customers, stepped in to keep the lights on for the bulb’s 1.5 million customers. The Office for Budget Responsibility expects the saga to cost taxpayers £6.5 billion. Of that, Britain’s fiscal watchdog has earmarked £4.5 billion to smooth the way for an Octopus takeover.

However, that number may prove to be much higher. This is the maximum loan the state will provide to buy all the power Bulb customers need until the end of March, when Octopus will take over the entire responsibility of buying wholesale power. Octopus itself thinks the loan could be as much as 2.4 billion pounds, given the recent drop in wholesale prices. If that is true, the bulb will cover the cost of regular payments by consumers. In addition, while Octopus has until September 2024 to repay the loan, it must share any profits it makes from the bulbs with the government until it does so. It also pays up to 200 million pounds for clients.

That’s still a good deal for Octopus, which has already attracted investment from Al Gore’s investment firm. It would have taken years for Jackson to grow its customer base by 50% to 4.5 million customers. And given that the UK government had already capped electricity prices for households, the state could have simply managed the business.

In a way, the bulb rescue is a smaller version of Britain’s wider energy mess. The government’s Energy Price Guarantee, in which the state picks up any difference between a capped energy bill and the true wholesale cost of power supply, could cost taxpayers £16 billion in the first three months of 2023 alone. With retail electricity prices fixed and the government on the hook for higher wholesale costs, Britain’s privatized power industry operates in anything but a free market. The question is how far the British electorate will accept that an industry that is nationalized in name should all but remain in private hands.

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Reference news

Britain will provide up to 4.5 billion pounds ($5.4 billion) in funding to help with Octopus Energy’s takeover of compact energy supplier Bulbs and related energy purchase hedging costs, the UK government said on December 21.

The acquisition, approved in October by the Department for Business, Energy and Industrial Strategy (BEIS), closed before midnight on December 20 despite a legal challenge from rival suppliers E.ON, British Gas and Scottish Power.

The government’s support for bulbs could eventually be capped at less than 4.5 billion pounds, depending on energy prices, the government said in a notice published on December 20.

Octopus will have to repay the funds to the government by September 2024, the notice added.

Editing by Peter Thal Larson and Streisand Neto

Our Standards: The Thomson Reuters Trust Principles.

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