Supplier of Last Resort UK: What Happens to Business Customers When an Energy Supplier Fails

When an energy supplier fails, the immediate concern for any business is whether its electricity and gas will continue to flow. The answer, under the Supplier of Last Resort mechanism, is yes - supply continues uninterrupted. The commercial and financial consequences of a supplier failure are more nuanced, particularly for business customers who may have credit balances in their account, fixed-rate contracts they expected to honour, or complex multi-site arrangements.

The wave of supplier failures in 2021 and 2022, triggered by a sharp rise in wholesale energy prices, brought the SoLR mechanism into focus for thousands of business customers who had not previously considered what would happen if their supplier stopped trading. Understanding the process is essential context for any business managing energy procurement risk.

The legal basis for the SoLR mechanism

The Supplier of Last Resort process derives from the supply licence conditions issued by Ofgem under the Electricity Act 1989 and the Gas Act 1986. The standard conditions of electricity and gas supply licences set out the process by which Ofgem can appoint a SoLR when a supplier's licence is revoked or surrendered.

Under the licence conditions, a supplier whose licence is revoked must cooperate with the transfer of its customer accounts to the appointed SoLR. The SoLR is typically an existing licensed supplier selected by Ofgem through a competitive process - Ofgem invites bids from willing licensed suppliers and assesses which bidder offers the most appropriate terms for the affected customers, taking into account price, operational capacity, and financial standing.

The SoLR appointment is a regulatory decision by Ofgem, not a commercial transaction between the failed supplier and the acquiring supplier. The SoLR does not purchase the failed supplier's assets or assume its liabilities in a conventional sense. It takes on the customer accounts under terms set by Ofgem.

What happens to supply continuity

The defining feature of the SoLR mechanism is that energy supply to all premises - domestic and non-domestic - continues without interruption at the point of supplier failure. The physical gas and electricity infrastructure is unaffected by a supplier's commercial collapse. The Distribution Network Operator and gas transporter continue operating the network regardless of which supplier holds the retail account.

From the business customer's perspective, the transition works as follows:

1. Ofgem announces the SoLR appointment, typically within days of the supplier ceasing to trade
2. The SoLR contacts affected customers to confirm the transfer of their account
3. Meters are read (or estimated) at the transfer date to establish a clear demarcation between the failed supplier's liability period and the SoLR's period
4. The business continues to receive supply under SoLR terms while it decides whether to remain with the SoLR or switch to an alternative supplier

There is no gap in supply and no action required by the business to maintain energy flow. The key actions required relate to account management and future commercial arrangements, not physical supply continuity.

Terms with the SoLR: what changes and what does not

A business transferred to a SoLR does not retain the commercial terms of its original contract. The fixed rate, contract length, and any other agreed terms with the failed supplier do not transfer. The SoLR supplies energy under its own terms, which are typically set at or near its standard variable rate rather than the potentially favourable fixed rate the business had secured.

This is the most significant commercial consequence of a supplier failure for business customers. A business that had locked in a below-market fixed rate six months before the failure may find itself on SoLR rates substantially above its contracted price. There is no regulatory mechanism that preserves the failed supplier's pricing.

The SoLR is required by Ofgem to allow transferred customers to switch away to an alternative supplier without penalty. Ofgem's process documentation confirms that businesses should not be locked into long-term contracts with the SoLR against their will. In practice, switching while the wholesale market is volatile following a mass failure event may result in limited supplier choice and elevated available rates.

Credit balances and what happens to them

If a business was in credit with its failed supplier at the point of failure - whether because it had overpaid, was on direct debit, or had prepaid for energy - that credit balance does not automatically transfer to the SoLR. The SoLR takes on the account but not the financial obligations of the failed supplier.

Credit balances are recovered through Ofgem's Supplier of Last Resort Levy process. Ofgem allows the SoLR to recover the cost of honouring customer credit balances by levying a charge across the wider industry, which is ultimately recovered through network charges. In practice, the process for business customers recovering credit balances from a failed supplier can be lengthy, and the outcome depends on the assets recoverable from the failed entity through insolvency proceedings.

Business customers with significant credit balances at a supplier that is showing signs of financial difficulty should consider requesting a refund of any credit balance before the failure point. Suppliers are required under licence conditions to refund credit balances on request within a reasonable timeframe, subject to verification.

Notable supplier failures of 2021-2022 affecting business customers

The 2021-2022 period saw an unprecedented number of licensed supplier failures in Great Britain, driven by the rapid increase in wholesale gas and electricity prices following demand recovery from the pandemic period and supply-side constraints. Several suppliers that had significant non-domestic customer books failed during this period, including:

• Bulb Energy: one of the largest failures, with approximately 1.7 million customer accounts including business customers. Bulb was too large for the conventional SoLR process and was instead placed into Special Administration.
• Orbit Energy: ceased trading in October 2021; customers transferred to ScottishPower as SoLR.
• Neon Reef: ceased trading in November 2021; Ofgem appointed a SoLR to take on its business customer accounts.
• Pure Planet: ceased trading in September 2021; Scottish Power appointed as SoLR.
• Ampower: a supplier with a non-domestic focus that ceased trading in 2021.

The full list of supplier failures and SoLR appointments during this period is published in Ofgem's decisions register. Each appointment decision document sets out the terms of the transfer and the rationale for the selected SoLR.

The Special Administration Regime for large suppliers

The conventional SoLR process is designed for suppliers of manageable size. When a very large supplier fails, transferring its entire customer book to a single SoLR may not be commercially or operationally viable. For these cases, the Energy Act 2011 introduced the Special Administration Regime (SAR), which allows the government to apply to the court for an energy supply company to be placed into special administration rather than conventional insolvency.

Under a SAR, an administrator is appointed with a statutory objective of maintaining continuity of supply and facilitating the transfer of the company's supply business to one or more other licensed suppliers or to a company holding a supply licence. The Bulb Energy special administration, which began in November 2021, was the first use of the SAR mechanism. The government provided financial support to maintain supply during the administration period.

For business customers, the practical consequences of a SAR are similar to a conventional SoLR transfer: supply continues, original contract terms are not preserved, and credit balances are subject to a recovery process. The key difference is the government involvement and the longer timeline before accounts are finally transferred to ongoing suppliers.

How a business should respond to a SoLR transfer

On receiving notification that its supplier has failed and a SoLR has been appointed, a business should take the following steps:

1. Note the meter readings at the transfer date, or verify the estimated readings used by the SoLR, as these determine the boundary between the failed supplier's billing and the SoLR's billing
2. Request written confirmation of the SoLR terms, including the unit rate, standing charge, and contract duration
3. Obtain a statement of account from the SoLR showing the opening balance transferred
4. Begin the process of comparing alternative suppliers to secure a contracted rate, rather than remaining on variable SoLR terms indefinitely
5. Submit a claim for any credit balance held by the failed supplier through the Ofgem-administered process or the insolvency practitioner handling the failed entity's estate
6. Review any contract guarantees, parent company guarantees, or insurance policies that may cover losses arising from supplier failure

Frequently asked questions

Editorial disclaimer: This article explains the Supplier of Last Resort mechanism as established under Ofgem licence conditions and UK energy legislation and does not constitute legal or financial advice for any business affected by a specific supplier failure.

Will a business lose its fixed-rate contract if its supplier fails?

Yes. The original contract terms, including the fixed rate, do not transfer to the Supplier of Last Resort. The SoLR supplies energy under its own terms from the date of transfer. There is no regulatory mechanism that requires the SoLR to honour the pricing agreed with the failed supplier. Businesses that had secured favourable fixed rates will need to re-enter the market when switching away from the SoLR.

How long does a business typically stay on SoLR terms before it can switch?

Ofgem confirms that businesses can switch away from the SoLR at any time without exit penalty. The practical timeline depends on how quickly the business can obtain quotes from alternative suppliers and complete the industry transfer process. The electricity transfer process takes approximately 17 working days from contract signature. Businesses should not assume they are locked in for any minimum period with the SoLR.

Is there any compensation for losses caused by a supplier failure?

There is no automatic compensation scheme for business customers who suffer losses as a result of a supplier failure. Credit balances may be recoverable through the Ofgem levy process or insolvency proceedings, but recovery timescales and amounts are not guaranteed. Business customers who suffer significant losses from a supplier failure should seek legal advice on their position in the insolvency of the failed entity.

What is the difference between a SoLR transfer and a standard supplier switch?

A standard supplier switch is a voluntary commercial decision made by the business customer, completed through the industry transfer process with the gaining and losing suppliers. A SoLR transfer is a regulatory action initiated by Ofgem following a supplier licence revocation. The business customer has no say in which SoLR is appointed. The outcome for ongoing supply is similar, but the SoLR transfer happens immediately by regulatory direction rather than through the 17-working-day transfer process.

Can a business refuse to be transferred to the SoLR?

No. The SoLR appointment by Ofgem is a regulatory direction that applies automatically to all accounts of the failed supplier. A business cannot opt out of the transfer. However, it can immediately begin the process of switching to an alternative supplier of its choice once notified of the SoLR appointment, and it is not obliged to enter a new long-term contract with the SoLR.

How we verified this

This article draws on Ofgem's SoLR decision notices and guidance pages at ofgem.gov.uk, the Electricity Act 1989 and Gas Act 1986 on legislation.gov.uk, the Energy Act 2011 provisions on Special Administration, and Ofgem's standard licence conditions governing SoLR obligations. Supplier failure examples are drawn from Ofgem's published decision register. No aggregator or third-party content was used as a primary source.

Sources

• Ofgem: Supplier of Last Resort - ofgem.gov.uk
• Ofgem: Decisions and publications register - ofgem.gov.uk
• Energy Act 2011 - legislation.gov.uk
• Electricity Act 1989 - legislation.gov.uk

For more on how the non-domestic supplier market is structured, see business-energy-suppliers-uk. For guidance on new connections and deemed contracts, see new-business-energy-connection-uk.