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Energy firms go bust: should I leave my small supplier?

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26/11/2018
Customers of small energy firms may be alarmed by the news of two more suppliers collapsing this week.

Extra Energy and Spark Energy, which combined had 400,000 customers, are the sixth and seventh small providers to fold in 2018.

They join the ranks of Future Energy, National Gas and Power, Iresa Energy, Gen4U and Usio Energy, which had over 117,000 customers between them before they went bust.

Ofgem, the energy regulator, has been quick to reassure customers that their supply will not be affected, and any outstanding credit balances will be protected.

The regulator has already appointed Scottish Power to take on supplying Extra Energy’s 108,000 domestic customers and Ovo to supply Spark Energy’s 290,000 customers.

However, these customers will likely see their bills increase as the new supplier will be taking on more risk by having to buy more wholesale energy at short notice.

This could cause concern for the thousands of customers of the 60 plus small suppliers still functioning.

According to the latest figures from Energy UK, 27% of the 630,000 customers who switched provider last month moved to a small or mid-tier supplier.

So, should these customers jump ship or are they better off sitting tight?

“We would recommend that people on good value fixed tariffs with small energy suppliers hold their nerve,” said Peter Earl, head of energy at Comparethemarket.

“If the tariff remains highly competitive, we would suggest that people stay with their provider for the duration of their deal, as your supply is protected even if your company doesn’t survive.

“While there are some pressures on companies who are having to pay more to purchase energy at the moment because of the higher wholesale prices, the majority of companies should have the financial stability to weather the storm.”

Stricter tests for new suppliers

Earl also points to the recently announced stress tests Ofgem plans to introduce to limit the number of businesses going bust in future.

Among the measures, which are due to come into force in spring 2019, applicants for new supply licences will have to prove to the regulator they have the funds and resources to manage their business for at least the first 12 months.

However, concerned customers should take action, especially if they are on an uncompetitive tariff.

“If you are particularly worried about your provider in light of the recent collapses of Extra Energy and Spark Energy then we would recommend switching today to a potentially better deal and to a supplier you have more confidence in,” Earl said.

Auto-switching sites

Another option is to sign up to an automatic switching service, which monitors the market, automatically moves you to the best tariff and takes care of the switch for you.

There are several of these auto-switchers to consider; some are free to use but the number of energy suppliers is limited, while others charge a fee but claim to be whole of market.

Mark Gutteridge, managing director of auto-switching site, Flipper, said: “While there’s no need to panic if your energy supplier ceases trading, it’s really important that you don’t just stick with the new supplier and tariff you are offered.

“Either check the market to make sure you are not losing out after you are switched or sign up to an auto-switching service like Flipper.”

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