Last 2021 and early 2022, a large number of energy companies in the UK went bust.
Now all that is on the news is how the UK Government are going to impose a windfall tax on energy companies because their profits are soaring.
How do these two things happen at the same time?
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For the most part these are different types of companies, on different sides of the same problem.
The companies that were going out of business last year were largely resellers; companies not actually producing or importing energy, merely buying it wholesale and selling it onto consumers at a small mark-up.
When wholesale energy prices spiked they found themselves in trouble; they were already working on small profit margins, many had customers locked into long-term contracts (so they couldn’t increase their own prices), and they no financial reserves or other areas of business to pull funds from to cover the gap between the increase in wholesale prices and when they could increase the prices they charged customers. Their costs went up, their revenues didn’t, so they went out of business.
A large part of why wholesale energy prices spiked was that there was a big surge in demand for energy as the pandemic started easing up (plus the Russian invasion of Ukraine hasn’t helped). That meant the oil and gas companies producing energy were able to increase their prices (higher demand, same supply, higher prices). So those companies ended up making a lot more money from the higher energy prices they were able to charge, but without their costs increasing at the same rate.
So the big energy companies are pulling in huge profits because they put up their prices a lot. Consumers are paying for this in higher bills and higher costs of goods. But a bunch of the resellers in the middle went out of business because there was a small window when they were forced to buy at the higher prices from the big companies but they couldn’t pass the extra costs onto the consumers.
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