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Loss-making UK energy supplier Bulb Energy is fighting for its future and has asked its main bankers to help it find new sources of finance as record wholesale energy prices create unrest in the area.
The start-up, which supplies electricity and gas to 1.7 million UK customers, is being advised by longtime bankers Lazard as it explores its options, said people with direct knowledge of the matter .
These options include raising new funds from investors as well as discussing with other vendors about a joint venture or potential merger, the people said. In these approaches, Bulb has highlighted the quality and size of its customer database.
A potential new backer approached for Bulb’s funding said it would be difficult given the current environment.
The UK energy sector has been plunged into crisis as wholesale energy prices have spiked to record levels this year, leaving many suppliers in the red as costs have exceeded customer bills for those who are not. fully covered.
Five small energy providers have already gone bankrupt in recent weeks and the industry has warned that this may be just the tip of the iceberg in the months to come. The government has been told by energy providers that only six to ten will be left after winter, up from more than 50 earlier this year.
Bulb said in a statement that “from time to time we explore various opportunities to fund our business plans and continue our mission of reducing bills and CO2 emissions.”
“Like everyone in the industry, we monitor wholesale prices and their impact on our business.”
Lazard declined to comment.
The UK government is considering a host of options that will likely amount to a multibillion pound emergency package for the industry, as bigger suppliers warn they will struggle to cater for the millions of customers who could be transferred from any rivals that fail in the next few weeks and months.
Founded in 2015, Bulb has quickly grown into one of the UK’s largest suppliers since its launch providing low cost deals and referral bonuses to customers. It is Britain’s sixth largest supplier with a market share of just under 6% in March this year.
Bulb was founded by former Bain management consultant Hayden Wood and Amit Gudka, a former energy trader at Barclays, in an attempt to challenge the might of what were then called the Big Six suppliers of energy, led by British Gas.
But the company has come to characterize many of the problems encountered by so-called challengers suppliers. It grew rapidly, attracting customers with low-cost offers and promises of 100% renewable electricity, but remained heavily in deficit. In the year to March 31, 2020, he suffered a loss of £ 63million.
Analysts have already likened it to ridesharing or food delivery apps; that it was okay to take losses as long as it maintained a rapidly growing market share, but might struggle to start making a profit. In March, it increased its average tariff by £ 91 per year and again in May by £ 69, but was still charging below the price cap level of regulator Ofgem.
The regulator raised the price cap last month from £ 139 to £ 1,277 due to soaring wholesale costs, but they have continued to rise since then as the UK daily gas price has risen by nearly by 40% since the beginning of the month.
Rival suppliers had privately expressed concerns about Bulb’s ability to withstand the impact of record high gas and electricity prices, with one competitor describing it as “too big to fail” given its rapid growth.
In a previous interview with the Financial Times, Wood said Bulb has grown much faster than he and Gudka – who has since stepped down from his leadership role at the company despite remaining on its board of directors – had never considered it.
They originally planned to grow by 20,000 customers per year, but found that in 2017 Bulb was adding 20,000 customers per week.