How to keep too many energy providers from going bankrupt

Energy prices have soared over the past months. Energy suppliers are running into financial trouble because they have agreed to sell energy at less than the price it now costs them to buy it. Some suppliers have gone bankrupt, and more may follow. Tsjalle van der Burg proposes a new plan to help prevent such bankruptcies, discussing the cases of the Netherlands and the UK.

 
The Dutch situation

In the Netherlands, 56 per cent of households have a fixed-rate energy contract for one to five years, and most often for three years or more. In 44 per cent of the cases, the contracts have variable rates, which the provider can change every six months. The current energy price explosion has caused providers to make losses on both types of contracts. They can stop part of the losses on January 1, when they are allowed to increase their prices for variable-rate contracts as they see fit—the Netherlands have no price cap. However, the fixed-rate contracts can lead to losses for a much longer period of time.

Although no Dutch energy supplier has gone bankrupt yet, a small supplier has recently informed its clients that it will terminate their fixed-rate contracts unless they pay a higher price. The Autoriteit Consument & Markt (ACM), a legal authority, has immediately judged that this is an illegal breach of contract. What the small supplier will do next is not known; it may declare bankruptcy. In the future, there may be other bankruptcies, especially if energy prices remain high.

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Πηγή: blogs.lse.ac.uk