Supplier of Last Resort (SoLR): What Happens When Suppliers Fail?

Introduction

The wave of supplier failures during the 2021–2022 energy crisis has brought the Supplier of Last Resort (SoLR) process into sharp focus. This mechanism is critical for maintaining consumer confidence and market stability in both the gas and electricity sectors. In this article, I’ll explain how SoLR works, the roles of key market participants, and the implications for customers, suppliers, and the wider market. I’ll also reference the relevant codes and guidance from Ofgem, Elexon, Xoserve, and the Uniform Network Code (UNC).

What is the Supplier of Last Resort (SoLR) Process?

The SoLR process is a regulatory safety net designed to ensure that, if a licensed energy supplier fails, its customers continue to receive gas and electricity without interruption. Ofgem oversees the process for both markets, appointing a new supplier to take on the failed supplier’s customers.

For an overview, see Ofgem: Supplier of Last Resort Guidance.

How SoLR Works: Step by Step

1. Supplier Failure

A supplier may fail due to insolvency, regulatory action, or voluntary market exit. In 2021–22, the primary cause was financial distress from wholesale price spikes and the constraints of the price cap.

2. Ofgem’s Role

Ofgem monitors supplier health and, upon failure, initiates the SoLR process. Ofgem invites applications from other suppliers to take on the failed supplier’s customers, considering factors such as operational capacity, customer service, and financial resilience.

3. Customer Transfer

Customers are automatically transferred to the appointed SoLR. There is no loss of supply, and credit balances are protected. Ofgem provides guidance for affected customers (Ofgem: Advice for Customers).

Electricity: Codes, Settlement, and Elexon’s Role

In the electricity market, Elexon administers the Balancing and Settlement Code (BSC). When a supplier fails:

Elexon coordinates the transfer of metering and settlement data to the new supplier.
Settlement obligations of the failed supplier are managed to minimise disruption to the market.
The BSC Panel may take actions to protect the integrity of the settlement process.

For more, see Elexon: Supplier Failure Guidance.

Gas: Codes, Settlement, and Xoserve’s Role

In the gas market, Xoserve acts as the Central Data Service Provider, and the Uniform Network Code (UNC) governs the process:

Xoserve manages the transfer of customer data and ensures continuity of supply.
The UNC sets out the procedures for supplier exit, customer allocation, and settlement of outstanding charges.
National Grid Gas, as the System Operator, ensures system stability during the transition.

For details, see Xoserve: Supplier of Last Resort Guidance and UNC documentation.

Special Administration Regime

If a failed supplier is too large for the SoLR process (as with Bulb Energy in 2021), the government may invoke the Special Administration Regime (SAR). This places the supplier under temporary public control to protect consumers and maintain supply until a long-term solution is found (BEIS: Bulb Special Administration).

Implications for Consumers

No Loss of Supply: Customers continue to receive gas and electricity without interruption.
Credit Balances Protected: Ofgem requires the SoLR to honour domestic customer credit balances.
Tariff Changes: Customers may be moved to a “deemed” tariff, which could be higher than their previous rate. Ofgem advises customers to shop around once transferred.

Implications for the Market

Cost Recovery: The costs incurred by the SoLR (e.g., honouring credit balances, higher wholesale prices) can be recovered from the wider market through industry levies, ultimately impacting all consumers.
Market Consolidation: The process has accelerated consolidation, with larger, more resilient suppliers absorbing failed competitors.
Regulatory Scrutiny: Ofgem has tightened licensing requirements and is reviewing risk management standards for suppliers (Ofgem: Supplier Licensing Review).

Case Study: The 2021–22 SoLR Wave

Between August 2021 and February 2022, over 25 suppliers failed, affecting millions of customers. Both gas and electricity markets were impacted, with SoLRs such as Octopus Energy, E.ON Next, and British Gas taking on large numbers of new customers. The process was tested at unprecedented scale, revealing both strengths and areas for improvement in the regulatory framework (Ofgem: List of Supplier Exits).

Conclusion

The Supplier of Last Resort process is a cornerstone of consumer protection in the GB utilities market. While it has proven robust under extreme stress, the recent crisis has highlighted the need for ongoing reform and vigilance to ensure market stability and consumer confidence in both gas and electricity.

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