Energy suppliers granted £1.8 billion for taking on customers from failed firms

Energy suppliers that took on the customers of their failed rivals will be able to claim back more than £1.8 billion by adding it to the bills of households and businesses.

Regulator Ofgem said it had approved payments to eight different so-called suppliers of last resort, which stepped in to ensure that lights stayed on for close to 2.2 million households and businesses.

By far the biggest payment was made to Octopus Energy, which had also taken on the highest number of new customers.

Octopus claimed £681 million to pick up the pieces from failed supplier Avro Energy.

The second biggest claims were made by Shell Energy and British Gas, which picked up more than half a million customers each amid a slew of recent supplier failures.

Because of soaring gas prices, dozens of energy suppliers have gone bust over the last few months, leaving millions of customers in limbo.

When a supplier collapses, energy regulator Ofgem asks for a volunteer to take responsibility to keep gas and electricity flowing to customers of the failed company.

But this can be an expensive process; the new supplier will often need to bring in new staff to move accounts across and, most importantly, it will have to place an advance order for the gas and electricity the customers will use over the coming months.

So to encourage volunteers to come forward, Ofgem allows them to claim back costs that they rack up when taking on these new customers.

Each claim is limited to what Ofgem considers a reasonable cost.

“Ofgem’s safety net has protected more than four million customers through the unprecedented global gas prices this year, making sure they have an energy supplier and household credit balances are honoured,” the regulator said on Wednesday after the new figures were published.

“This comes at a cost, which we always seek to minimise. As we announced last week, we’re also stabilising the retail market with robust stress tests for all suppliers.”

The money will ultimately fall on bill payers across the country. Each household and business will be charged a portion of the £1.8 billion.

The regulator could add this onto bills from the beginning of April next year, adding to the already soaring energy prices which caused the suppliers to fail in the first place.

Experts believe that the energy price cap, which limits the amount that a supplier can charge customers on its standard tariffs, might increase by more than 50% from April.