The Rise and Fall of Small Suppliers: Lessons from the Crisis

Introduction

The privatisation of the GB energy market was intended to foster competition, drive innovation, and deliver better value for consumers. For much of the 2010s, this vision seemed to be coming true: dozens of new, agile suppliers entered the market, challenging the dominance of the “Big Six” and offering consumers more choice than ever before. However, the energy crisis of 2021–2022 exposed deep vulnerabilities in the business models of many small suppliers, leading to a wave of failures and a fundamental rethink of market design. In this article, I’ll chart the rise and fall of small suppliers, analyse the causes of the crisis, and draw lessons for the future of competition in the GB energy market.

The Emergence of Small Suppliers

Policy Drivers

The post-privatisation market was initially dominated by a handful of large, vertically integrated companies. To break this oligopoly, Ofgem and government introduced a series of reforms:

Supplier Market Entry Reforms: Lowered barriers to entry, streamlined licensing, and simplified industry code accession (Ofgem: Supplier Licensing).
Market Share Caps and Tariff Simplification: Measures to prevent incumbents from locking in customers and to make switching easier.
Support for Innovation: Ofgem’s Innovation Link and sandbox schemes allowed new entrants to trial novel business models (Ofgem: Innovation Link).

Growth and Diversity

By 2018, there were over 70 active suppliers in the domestic market, with small and medium suppliers accounting for more than 20% of customers (Ofgem: State of the Energy Market 2018). These new entrants offered:

Cheaper Tariffs: Often undercutting the Big Six with aggressive pricing.
Green and Niche Products: 100% renewable tariffs, community energy, and digital-first experiences.
Customer Service Innovation: App-based management, flexible billing, and tailored support.

The Business Models of Small Suppliers

Strengths

Agility: Small suppliers could respond quickly to market trends and customer needs.
Low Overheads: Lean operations and digital platforms reduced costs.
Niche Focus: Ability to target specific customer segments (e.g., green energy, prepayment, local supply).

Vulnerabilities

Thin Capitalisation: Many operated with limited financial reserves, making them vulnerable to market shocks.
Limited Hedging: Smaller suppliers often lacked the scale or creditworthiness to hedge wholesale energy purchases effectively.
Reliance on Growth: Some business models depended on rapid customer acquisition to cover operating costs.

The 2021–2022 Crisis: A Stress Test

Wholesale Price Shock

The surge in wholesale gas and electricity prices in 2021–22 was unprecedented. Many small suppliers, unable to pass on costs due to the price cap and lacking robust hedging strategies, faced unsustainable losses (Ofgem: Price Cap Update).

Wave of Failures

Between August 2021 and February 2022, over 25 suppliers exited the market, affecting millions of customers. Notable casualties included:

Bulb Energy: The largest failure, with 1.7 million customers, placed into Special Administration (BEIS: Bulb Special Administration).
Green Network Energy, Avro Energy, and Utility Point: Among the many others that ceased trading, triggering the Supplier of Last Resort (SoLR) process (Ofgem: Supplier Exits).

Impact on the Market

Customer Disruption: Millions were transferred to new suppliers, often losing fixed tariffs and facing higher prices.
Cost Socialisation: The costs of SoLR and Special Administration (including honouring credit balances) were spread across all consumers via industry levies.
Market Consolidation: The number of active suppliers fell sharply, with larger, more resilient firms absorbing failed competitors.

Regulatory and Market Responses

Ofgem’s Supplier Licensing Review

In response to the crisis, Ofgem accelerated its Supplier Licensing Review, introducing tougher requirements for new and existing suppliers:

Financial Resilience: Minimum capital requirements and stress testing.
Hedging and Risk Management: Stronger obligations to manage wholesale market risk.
Customer Service Standards: Enhanced requirements for customer support and complaint handling.

For details, see Ofgem: Supplier Licensing Review Policy Consultation.

Market Design Reforms

Review of the Price Cap: Ongoing debate about the cap’s role in a volatile market and its impact on supplier viability.
Reform of SoLR and Special Administration: Proposals to improve the process and reduce costs to consumers.
Encouraging Innovation: Continued support for new business models, but with greater scrutiny of financial and operational robustness.

Case Study: Bulb Energy’s Rise and Fall

Bulb Energy, founded in 2015, grew rapidly to become the UK’s seventh-largest supplier, championing green tariffs and digital-first service. However, its rapid expansion was underpinned by limited hedging and thin capitalisation. When wholesale prices spiked, Bulb was unable to cover its costs and entered Special Administration in November 2021. The government’s intervention, while protecting customers, highlighted the systemic risks posed by large, undercapitalised suppliers (BEIS: Bulb Special Administration).

Lessons Learned

For Policymakers and Regulators

Balance Competition and Resilience: Lowering barriers to entry must be matched by robust financial and operational standards.
Monitor Business Models: Early warning systems for risky growth strategies and inadequate hedging are essential.
Protect Consumers: Mechanisms to safeguard credit balances and ensure continuity of supply must be maintained and improved.

For Suppliers

Risk Management is Critical: Effective hedging and capital management are non-negotiable in a volatile market.
Customer Trust is Hard-Won: Service failures and abrupt exits damage the reputation of the entire sector.
Innovation Must Be Sustainable: Growth and new products must be underpinned by sound business fundamentals.

The Future of Competition

The GB energy market is entering a new phase. While the era of rapid proliferation of small suppliers may be over, competition and innovation remain vital. The challenge is to foster a market where new entrants can thrive—provided they are resilient, well-managed, and able to withstand shocks.

Ofgem’s ongoing reforms, the evolution of market codes, and the lessons of the crisis will shape the next generation of suppliers and the future of consumer choice.

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