“Bust energy suppliers suffered from weak business models, not energy prices”

Fragile financial foundations were a “major catalyst” for failed UK energy firms in 2021, the boss of a fintech startup told ELN

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Energy providers that failed last year were in financial distress years before the current energy price hikes.

That’s according to new research by the fintech startup Wiserfunding which suggests nearly half of 11 energy companies that went under last year were at high risk of default within just 18 months of their initial incorporation.

The report, which analysed financial risk data of failed companies, stresses that most companies showed serious vulnerabilities in 2019, one year before the official energy crisis began.

Gabriele Sabato, Co-founder and Chief Executive Officer at Wiserfunding, told ELN: “What we found was quite interesting. A lot of these energy suppliers seemed to be already in financial distress two years or more before the crisis.

“The finding was quite surprising because everyone was telling that the increase in energy prices was the main driver of energy firm failures. But our research shows that the companies were always on the edge, their business model was not particularly solid.”

It is estimated that more than 30 energy suppliers have exited the market since the start of 2021.

In the last few days, there has been much speculation concerning Gazprom Energy’s future while the government has reportedly already prepared to take over in the event of a collapse.

Mr Sabato also predicted that although Russia’s invasion of Ukraine has a further knock-on effect as a macroeconomic risk, it won’t lead to the failure of British energy suppliers on its own.

He said: “We see larger companies being able to mitigate the effect, but still there are smaller energy suppliers that are just on the edge. Further increases in prices may lead them out of the market.”

Watch the video to listen to the entire interview.

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