Taxpayers’ Bulb bailout cost plunges after Octopus supply deal with government
The cost to taxpayers of rescuing the biggest residential energy supplier to collapse during the recent industry crisis has plunged – a rare glimmer of good news after two years of turmoil.
Sky News has learnt that the latest figures sourced from insiders suggest that the demise of Bulb, which became insolvent in November 2021, will have been far less costly than forecast.
According to industry figures close to the situation, the bill to taxpayers between the timing of Bulb’s special administration and its takeover by Octopus Energy in December totalled £1.45bn.
However, executives close to the buyer are now said to believe that the government is expected to make a profit of up to £1.2bn on the supply of energy to Bulb between the date of the takeover and the end of March.
This unexpected windfall for the state has been caused by the difference between the wholesale prices paid by the government – which have plunged in recent months – and the fixed price, set at the level of the current industry cap, paid by Octopus to obtain that energy.
Sources said that dynamic was likely to reduce the overall cost of the Bulb bailout to several hundred million pounds, although the ultimate figure remains subject to change.
On a per customer basis, that would make the Bulb rescue cheaper than some of the supplier of last resort (SOLR) deals struck with Ofgem, the energy regulator, during the last two years.
Bulb, with more than 1.5m customers, was by far the largest residential energy player to collapse as wholesale prices soared.
At the time, it was the UK’s seventh-biggest gas and electricity supplier.
The reduced taxpayer bill may be relevant in the context of judicial reviews lodged by rival energy suppliers including Centrica, the owner of British Gas, which alleged that the sale of Bulb to Octopus Energy had been unfairly handled.
A three-day hearing has been scheduled to hear the suppliers’ challenged beginning on 28 February.
On Thursday, Centrica sparked a new political row when it reported record annual profits of over £3bn.
In December, the Department for Business, Energy and Industrial Strategy (BEIS) said it had been advised by Bulb’s special administrator to set an upper limit for the post-takeover funding facility of £4.5bn.
“The £4.5bn figure represents an estimated upper limit of the support based on forecasted energy costs during the period until 31 March 2023, which reflects the current volatility in global energy prices, BEIS said at the time.
“The extent of government support could be lower than £4.5bn, depending on energy prices this winter.”
The £4.5bn estimate was in addition to the estimated £1.45bn pre-sale cost to taxpayers, but the government’s fiscal watchdog – the Office for Budget Responsibility – went even further, suggesting that the Bulb bailout could ultimately cost the public purse as much as £6.5bn.
In a more recent statement provided to Sky News, a government spokesman said: “The sale of Bulb to Octopus Energy concluded on 20 December 2022 and the transfer of customers is now in progress. Ensuring that we get the best outcome for Bulb’s customers and the British taxpayer remains our priority.
“We worked with Special Administrators to ensure fair and open competition to give Bulb’s 1.5 million customers much needed reassurance, while providing best value for taxpayers.
“The government will provide the remaining funding necessary to ensure that the special administration is wound up in a way that protects customers’ energy supply. We will recoup these costs at a later date.”
As part of the sale to Octopus, it is said to have agreed to pay between £100m and £200m to take on Bulb’s customer base, with a separate profit-share agreement giving the government a return for several years on earnings from Bulb customers.
An Octopus Energy spokesperson said: “Octopus always said this is a fair deal and good value for taxpayers.
“It’s becoming increasingly clear how good a deal the government have got.”
