Why green energy firm Bulb's collapse is not a big blow for renewables

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


| Analysis

23 November 2021

A man looking at the website logo for energy company Bulb on his phone in front of his gas cooker

Bulb Energy announced on Monday that the firm would be going into administration

True Images / Alamy

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. 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 piling 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 analysts 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 power price, so-called Contracts for Difference (CfD), Howard notes. The next round of CfD auctions starts in December, with £265 million allocated by 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 (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.

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’s a good chance that firm will also be buying certificates for electricity from renewables sources.

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 the charity Nesta 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 does not 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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source: newscientist.com