Falling gas prices could slash cost of propping up Bulb Energy by hundreds of millions of pounds
The bill for propping up Bulb Energy for over a year could be slashed significantly, following a sharp drop in wholesale prices over the winter.
If gas prices remain low, the government could recoup hundreds of millions of pounds from the sale of Bulb to Octopus Energy.
This could eventually trickle down to billpayers, who are currently expected to shoulder the costs of the biggest state bailout since the financial crisis in 2008.
Bulb has been forced to buy gas at spot prices, which has driven up the costs of its stint in de-facto nationalisation.
However, it has also benefitted from gas prices easing in recent weeks.
Warmer winter weather and Europe’s successful scramble for supplies saw prices drop as low as £1.36 per therm last week on the UK benchmark.
This is well above pre-crisis levels of around 45-50p per therm but well below the £8.75 per therm peak recorded last summer.
Estimates for the total cost of Bulb’s bailout have varied wildly – with Downing Street setting an upper limit of £4.5bn while the Office for Budget Responsibility calculated a potential cost of £6.5bn.
The recent drop in energy prices could scythe up to £840m from the overall bill, according to estimates from officials shared with The Financial Times.
The newspaper reports that the Treasury stands to make a net gain of £300m from Octopus in January or £840m in the three months to April based on prices this week.
These are snapshot figures and are highly dependent on usage and energy prices, which could rise again.
The precise terms of Octopus’ takeover of Bulb remain opaque – with ministers refusing to share specific details.
Morning Wire understands it includes a profit-share agreement, the ringfencing of Bulb’s 1.6m customers and a £100m-plus lump sum, in return for £1bn-plus in hedging support.
The takeover makes Octopus Energy the third-largest UK energy supplier behind British Gas and EON, with 4.9m customers.
While the cost of the bailout has been met with taxpayer funds, the Treasury is expected to spread the costs across every household’s energy bill.
Households are already paying £94 each for the cost of 29 other failed energy suppliers.
Bulb customers are now being hedged in line with Octopus’ pledges.
Shell, which handles hedging for Octopus, started hedging for Bulb’s customers on 20 December.
While the takeover was approved by the government and greenlit in court last month, the deal is still subject to a judicial review from Centrica, EON and Scottish Power which is expected in late February.