Households could be billed twice for green tax after suppliers go bust
Suppliers are meant to save money for an annual green tax, but many are thought to have used this money for day-to-day operations.
Households across the country could be billed twice as unscrupulous energy suppliers left a £71 million hole in a green tax fund intended to pay for renewables, industry insiders have warned.
Around one in four energy suppliers missed an annual deadline to pay the so-called renewables obligation in August, regulator Ofgem said.
They owed a total of £206 million, raising fears that several might be on the brink of collapse.
Ofgem revealed that 42 suppliers had missed the August deadline, out of a total 172. However, it has only named a handful of them that did not meet the final deadline on October 31.
Customers have already paid a significant chunk of these costs to suppliers which have since gone bust Michael Lewis, Eon chief executive
Suppliers collect the taxes from customers, and should put them aside to fund the yearly payment to Ofgem.
However, many end up using the funds to cover day-to-day expenses, and some go bust when they cannot pay the fees. Other suppliers then must pay in to fill the gap.
“The most worrying part of this issue is that customers have already paid a significant chunk of these costs to suppliers which have since gone bust,” Eon chief executive Michael Lewis told the PA news agency.
“That money is lost and has to be paid again by the rest of the industry, meaning customers effectively get billed twice.”
Late renewables obligation payments have been a bellwether for companies who are facing economic difficulty. Toto Energy, which was named as having missed a £4.6 million payment in October, has since gone out of business.
Spark Energy, Economy Energy and Eversmart, who were named as having missed their payment last November, went bust within months.
The fourth firm named by Ofgem last year, URE Energy, had its licence ripped up in August for failing to pay into the fund.
The news has worried experts who say the shortfall will now have to be made up by the remaining energy suppliers.
Consumer champions Citizens Advice has highlighted the issues in the past. Chief executive Gillian Guy in June called on the Government to force suppliers to pay the tax more regularly, limiting the impact when one goes bust.
The cost that is spread across the market is likely to be less than the £206 million that was missing when the deadline passed, as many companies will have made late payments since.
Many use the period between the deadline on August 31, and the final demand date on October 31, delaying the payment and paying the resulting interest that Ofgem charges as it is cheaper than a loan, according to Robert Buckley at energy research outfit Cornwall Insight.
Cornwall estimates that just under £71 million will be missing from the fund after the October 31 deadline, with Economy Energy, which went bust in January owing the most of anyone, at £15.6 million.
Last year, the regulator reduced the final shortfall from £103 million to £58.6 million.
Meanwhile, struggling suppliers will have one eye on so-called capacity market payments, which are designed to ensure that the grid can respond quickly to peak demand.
The scheme was suspended for around a year after a European court found authorities had not assessed it properly, before it was allowed to start in 2014.
With the scheme set to be re-introduced, insiders expect that Britain’s energy suppliers will lumped with a £1 billion bill, to support power generators.
Knowing these payments would be due, many companies will have put money aside over the last year. However, some worry cash-strapped firms might have been using the money they should be saving to run their day-to-day operations.
The capacity market is usually monthly, “but obviously we haven’t been paying for it in the last year and a bit, and so, if you haven’t accrued for it there is going to be a very large bill landing”, said Juliet Davenport, the chief executive of Good Energy.
But Mr Buckley pointed out that the £1 billion combined capacity market payments is much lower than the approximately £6.5 billion renewables obligation scheme.
The bills for the capacity market are likely to hit suppliers before the end of the year, insiders say.