The UK government has committed to providing up to £4.5 billion for the takeover of collapsed energy company Bulb by its rival Octopus.
Bulb spent more than a year in a state-controlled administration and its 1.5 million customers were transferred to Octopus on Tuesday night.
The Department for Business, Energy and Industrial Strategy said the cost could be up to £4.5 billion, depending on fluctuating energy prices, to fund the bulb’s operation under Octopus’s ownership until the end of March.
The government said it would also provide a cash injection to the company and cover any compensation arising “as a result of Bulbul’s actions prior to the transfer”.
Support is above the £1.1bn paid to take over the administration of the Bulb, This is expected to increase due to wind-down costs for administrator Teneo.
The Office for Budget Responsibility, an independently run but government-backed forecaster, previously said the cost of the bulb’s collapse could reach £6.5bn to the Treasury.
However, a government spokesman said the OBR figures did not reflect the true cost of the bulb, as the terms of the deal and the financial support ultimately to be paid by Octopus were not included in the monitoring estimates. “We still expect the net cost to taxpayers to be very low,” he said.
The figures come amid an intense dispute between politicians, ministers and rival suppliers over the cost of salvaging the bulb and the deal between the government and the octopus.
Bulb was founded in 2015 by entrepreneurs Amit Gudka and Hayden Wood with the intention of challenging the dominance of legacy supply firms of the energy industry, but was hit by a sharp rise in wholesale energy prices last year.
Octopus chief executive Greg Jackson has said it represents a “fair deal” for taxpayers. The acquisition also includes a four-year profit-sharing agreement between Octopus and the government. The National Audit Office has started probing the deal.
Rivals have said the bulb represents a “billion dollar mess”. British Gas, ScottishPower and EON challenged the deal. A court allowed Bulb’s customers to relocate and a judicial review, which could lead to the deal being unselected, is expected in court in late February.
As part of the judicial review process, it has emerged that Octopus has claimed the Treasury could get a stunning £300m boost to its coffers due to a fall in wholesale gas prices.
As part of the deal, the government agreed with Octopus to lend it money to buy the energy for the bulbs this winter.
However, in a witness statement presented to the court, Octopus’ chief financial officer, Stuart Jackson, said its projections now showed the government could get the money back by March with an additional £300m.
Suppliers usually buy energy in advance to protect themselves against sudden increases in prices. Wholesale gas prices have fallen sharply in recent months as European countries make good progress in replacing Russian gas supplies.
In an excerpt from the statement seen by the Guardian, Jackson said, based on Octopus’s calculations, the energy cost was “estimated at around £2.4 billion” and “the amount to be repaid is estimated to be around £2.7 billion”.
However, a source at one of Octopus’ competitors said: “It is possible that the drop in prices could lead to a positive return, although there is no transparency in terms of where gas prices will go this winter and the deal, so It is difficult to estimate any returns.
On the Bulb customer transfer, Jackson said: “It begins to eliminate enormous financial risks for taxpayers and paves the way for a better and more certain future for Bulb’s employees and customers.
“For now, we would ask Bulb customers to sit tight. He will still be looked after by the Bulb team. We will be in touch with customers whenever their account is ready to be transferred to Octopus’ award winning system.