UK government pledges up to £4.5bn to fund Bulb takeover by Octopus

The UK government has committed to provide up to £4.5bn to fund the takeover of the collapsed energy company Bulb by its rival Octopus.

Bulb spent more than a year in a state-handled administration and its 1.5 million customers transferred to Octopus on Tuesday night.

The Department for Business, Energy and Industrial Strategy said the cost could be up to £4.5bn to fund Bulb’s operations under Octopus ownership until the end of March, depending on the movement of energy prices.

The government said it would also provide the company with a cash injection and cover any compensation that may occur “as a result of Bulb’s actions prior to the transfer”.

The support is on top of the £1.1bn paid to handle Bulb’s administration. This is expected to rise because of wind-down costs for the administrator, Teneo.

The Office for Budget Responsibility, an independently run but government-backed forecaster, has previously said the costs of the Bulb collapse could reach £6.5bn for the Treasury.

However, a government spokesperson said the OBR figure did not reflect the true cost of Bulb, as the terms of the deal and financial support due to eventually be repaid by Octopus were not included in the watchdog’s estimates. “We still expect the net cost to taxpayers to be much lower,” he said.

The figures come amid an intense row between politicians, ministers and rival suppliers over the cost of bailing out Bulb and the deal between the government and Octopus.

Bulb was founded in 2015 by the entrepreneurs Amit Gudka and Hayden Wood with the intention of challenging the dominance of the energy industry’s legacy supply firms but was caught out by a sharp rise in wholesale energy prices last year.

The Octopus chief executive, Greg Jackson, has said it represented a “fair deal” for taxpayers. The acquisition also includes a four-year profit-share agreement between Octopus and the government. The National Audit Office has begun scrutinising the deal.

Rivals have said Bulb represents a “mess-up worth billions”. British Gas, ScottishPower and E.ON challenged the deal. A court allowed Bulb’s customers to be transferred and a judicial review, which could cause the deal to be unpicked, is expected to be heard in court in late February.

As part of the judicial review process, it has emerged Octopus has claimed the Treasury could receive a surprise £300m boost to its coffers owing to falling wholesale gas prices.

As part of the deal, the government agreed to lend funds for buying energy for Bulb this winter with Octopus.

However, in a witness statement submitted to the court, the Octopus chief financial officer, Stuart Jackson, said its estimates now showed the government could receive the funds back, with an extra £300m windfall by March.

Suppliers typically buy energy in advance to insulate themselves against sudden rises in prices. Wholesale gas prices have fallen sharply in recent months as European countries made good progress in replacing Russian gas supplies.

In an extract from the statement, seen by the Guardian, Jackson said, based on Octopus’ calculations, the cost of energy was “estimated at approximately £2.4bn” and the “amount to be repaid is estimated at approximately £2.7bn”.

However, a source at one of Octopus’s competitors said: “It’s feasible that the fall in prices could lead to a positive return, however there’s still lots of unknowns in terms of where gas prices will go this winter and there’s no transparency around the terms of deal, so any returns are hard to estimate.”

On the Bulb customer transfer, Jackson said: “This starts to bring an end to the huge financial exposures for taxpayers and paves the way for a better and more certain future for Bulb’s staff and customers.

“For now, we’d ask Bulb customers to sit tight. They will still be looked after by the Bulb team. We’ll be in touch with customers as and when their account is ready to move to Octopus’s award-winning systems.”