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Why wouldn't they hold the risk? They know what level the energy price cap is set at, so it is there job to hedge the risk that they can secure the supply below that level which many have failed to do. In Bulb's case, there business model is loss making to grow market share so they had no wiggle room to begin with.
It is the fault of the regulator that they allowed companies to take on positions with considerable risk without requirements around exposure levels
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Ofgem sets a price cap for a standard variable tariff (SVT) that is the maximum price an energy company can charge the consumer for a standard tariff. Fixed rate tariffs are treated different, so are excluded from this cap.
Energy is a pretty competitive market, with little to really differentiate the providers as the goods delivered are pretty intangible. thus consumers are very price sensitive, and will go for the cheapest option. This used to be a fixed rate (2 year fixed often), that guaranteed the suppliers regular income so they took a loss on energy in test 1, to make margin on year 2 due to hedged energy purchases. However, the current climate means that the cheapest tariff is the variable tariff as the cost of energy has risen to such an extent suppliers are increasing their fixed rate tariffs to maintain margin. As they can’t raise the svt above the price cap, this is now the cheapest tariff in market, and is a loss making one for suppliers.
So it’s partly the regulator not allowing higher costs to be passed on to the consumer and partly the govt protecting the consumer from excessive bills. Normally the price cap works, and is based on the cost of energy + x% to allow suppliers to make money from it but with the 70% increase in wholesale prices since the cap was announced in July it’s no longer valid.
If the price cap was calculated know it would be nearer £1700 vs the £1300 it will be from Oct simply due to August price increases.
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greentricky
C4r1s
@christianSpaceman
Why are they collapsing? Is it a regulator fail?
High wholesale prices I get but why are the commercial providers the ones allowed to hold the exposure to that, I'd assumed (presumably wrongly) it's their business to ship the stuff to consumers rather than to hold risk positions.