The collapse in the UK of green energy champion Bulb would seem to be a blow for the country’s efforts to decarbonise, but the way that the UK’s energy market works means investors are still likely to continue piling billions of pounds into new wind farms
23 November 2021
Green energy pioneer Bulb went from start-up to the UK’s seventh biggest energy supplier in six years by pricing electricity from wind and solar power at aggressively low levels, backed up by good customer service and technology.
Yesterday, it effectively collapsed under the ongoing shock of high gas prices, which has fed into wholesale electricity prices too. The large size of the company means that its 1.7 million customers will not immediately be switched to a rival supplier, but the firm will instead continue under a special administrator appointed by the country’s energy regulator, Ofgem. It is the biggest UK energy supplier to fail in 19 years.
On the face of it, the collapse of a green energy champion would seem a blow for the UK government’s new ambition to fully decarbonise its power grid by 2035.
However, the way the UK’s energy market works means Bulb folding is unlikely to deter the investors who are putting billions of pounds into gargantuan new wind farms off the country’s coast.
“I don’t think the Bulb collapse will have a big bearing on renewables’ investment,” says Richard Howard of analyst Aurora Energy Research.
The “vast majority” of investment in new wind and solar projects today hinges on a tried-and-tested financial model of winning contracts from the UK government for a guaranteed price for the power those projects will generate, so-called Contracts for Difference (CfD), notes Howard . The next round of CfD auctions starts in December, with £265 million allocated by the government for the incentives.
The other route to a final investment decision on new renewables’ schemes is by a big energy user such as a factory owner signing a deal for long-term, fixed-price supply (a power purchase agreement, or PPA) with the renewables’ developer.
The way Bulb bought its green energy for households has little effect on either route. Less than 5 per cent of its electricity was bought through a PPA last year. The rest of its electricity was bought on the wholesale market and then “greened” by buying a matching amount of certificates sold by companies that own wind and solar farms. Those certificates in effect verify the electricity supplied as renewable.
The money those wind and solar farms generated by those certificates was only a “nice bonus” on top of revenue from the CfDs, says Robert Buckley of analysts Cornwall Insight.
And although Bulb was a big buyer of the certificates, it was no longer the biggest after larger rivals including “big six” firm E.ON emulated its model two years ago and started supplying all its customers with fully renewable electricity.
That imitation was just one sign that Bulb’s approach of marketing itself on a single, affordable green energy tariff was “very influential”, says Buckley. It may not have succeeded in dominating the energy supply market, but Bulb pushed older legacy firms to go green. That means when its 1.7 million customers are eventually switched by Ofgem to a rival supplier or suppliers, there is a good chance that firm will also be buying certificates for electricity from renewables sources.
Bulb also supplied gas, widely used for heating and cooking in UK homes, but described it as carbon neutral, achieved mainly by buying it on the wholesale market and then supporting carbon-reduction schemes to offset emissions from this fuel.
Although Bulb’s collapse may not directly affect the amount of investment flowing into new UK renewable projects, it is nonetheless a bad look for such a high-profile green energy firm to fail. “Sentiment-wise it’s not a good look, is it” says Buckley. Andrew Sisson of Nesta, a charity that promotes sustainable innovation, echoes that view: “I think it’s obviously bad news when any major renewables company goes out of business.”
But Sisson says Bulb’s demise doesn’t change the direction of travel towards more new renewable energy schemes. “In the longer term, with gas being prohibitively expensive it does mean it’s pretty obvious the answer is more renewables and more heat pumps, less gas boilers.”
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