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Lossmaking UK energy provider Bulb Energy is racing to secure its future and has asked its main bankers to help find new sources of funding as record wholesale energy prices create turmoil in the sector.
The start-up, which supplies electricity and gas to 1.7m UK customers, is being advised by longstanding bankers Lazard as it explores its options, people with direct knowledge of the matter said.
Those options include raising new funds from investors as well as talking to other suppliers about a potential joint venture or merger, these people said. In those approaches, Bulb has been highlighting the quality and size of its database of customers.
One potential new backer approached about funding Bulb said it would be difficult given the current environment.
The UK energy sector has been thrown into crisis by a surge in wholesale energy prices to record levels this year, leaving many suppliers deep in the red as costs have run ahead of customer bills for those who are not fully hedged.
Five smaller energy suppliers have already failed in recent weeks and the industry has warned this could just be the tip of the iceberg in the months ahead. The government has been told by energy suppliers that only 6-10 could be left after the winter from more than 50 at the beginning of this year.
Bulb said in a statement that “from time to time we explore various opportunities to fund our business plans and further our mission to lower bills and lower CO2”.
“Like everyone in the industry, we’re monitoring wholesale prices and their impact on our business.”
Lazard declined to comment.
The UK government is examining a host of options that will probably amount to a multibillion-pound emergency package for the industry, as larger suppliers warn they will struggle to take on the millions of customers that could be transferred from any rivals that fail in the coming weeks and months.
Founded in 2015, Bulb has rapidly become one of the largest UK suppliers since its launch by offering low-price deals and referral bonuses to customers. It is the sixth biggest supplier in Britain with a market share of just under 6 per cent as of March this year.
Bulb was founded by former Bain management consultant Hayden Wood and Amit Gudka, a former energy trader at Barclays, to try and challenge the might of what was at the time referred to as the Big Six energy suppliers, led by British Gas.
But the company has come to typify many of the problems faced by so-called challenger suppliers. It grew rapidly, attracting customers with low-priced deals and promises of 100 per cent renewable electricity, but has remained heavily lossmaking. In the year to March 31 2020, it made a £63m loss.
Analysts have previously likened it to ride-hailing or food delivery apps; that it was OK making losses as long as it kept rapidly growing market share but may find it difficult to start turning a profit. In March it increased its average tariff by £91 a year and again in May by £69 but was still charging below the level of regulator Ofgem’s price cap.
The regulator increased the price cap last month by £139 to £1,277 due to the surge in wholesale costs, but they have continued to rise since then, with the day-ahead gas price in the UK rising almost 40 per cent since the beginning of the month.
Rival suppliers had privately raised concerns about Bulb’s ability to withstand the impact of record wholesale 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 indicated Bulb has grown far quicker than he and Gudka — who has since left his management role at the company although he remains on its board — had ever envisaged.
They had initially set out to grow by 20,000 customers annually but found by 2017 Bulb was adding 20,000 customers a week.