The UK government has committed to providing up to £4.5 billion to finance the acquisition of collapsed energy company Bulb by its rival Octopus.
Bulb spent more than a year in administration and its 1.5 million customers switched to Octopus on Tuesday night.
The Department for Business, Energy and Industrial Strategy said spending could reach up to £4.5bn to fund Octopus-owned Bulb operations by the end of March, depending on energy price movements.
The government said it would also provide the company with a cash injection and cover any compensation that may arise “as a result of Bulb’s actions prior to the transfer”.
The support is in addition to the £1.1bn paid to deal with Bulb’s administration. This is expected to increase due to the costs of decommissioning the Teneo administrator.
The Office for Budget Responsibility, an independently run but government-backed forecaster, previously said the cost of Bulb’s collapse could reach £6.5bn for the Treasury.
However, a government spokesman said the OBR’s figure did not reflect the true cost of Bulb, as the terms of the deal and the financial support ultimately to be paid 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 rescuing Bulb and the deal between the government and Octopus.
Bulb was founded in 2015 by entrepreneurs Amit Gudka and Hayden Wood with the intention of challenging the dominance of legacy supply firms in the energy industry, but was caught out by a sharp rise in wholesale energy prices last year.
Octopus chief executive Greg Jackson said it represented a “fair deal” for taxpayers. The acquisition also includes a four-year profit-sharing agreement between Octopus and the government. The Audit Chamber has begun to verify the transaction.
Rivals said Bulb was a “billion-dollar mess”. British Gas, ScottishPower and E.ON contested the deal. A court has cleared the transfer of Bulb’s customers, and a judicial review that could see the deal overturned is expected to be heard in court at the end of February.
As part of the judicial review process, it emerged that Octopus claimed the Treasury could receive a surprise £300m boost to its coffers due to falling wholesale gas prices.
As part of the deal, the government agreed to fund the purchase of energy for Bulb this winter with Octopus.
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However, in a witness statement given to the court, Octopus’ chief financial officer, Stuart Jackson, said his estimates now showed the government could get the funds back, with an extra £300m of windfall by March.
Suppliers usually buy energy in advance to insulate against sudden price increases. Wholesale gas prices have fallen sharply in recent months as European countries have made good progress in replacing Russian gas supplies.
In an extract from the statement seen by the Guardian, Jackson said that based on Octopus’ calculations, the energy cost was “estimated at approximately £2.4 billion” and “the payout amount is estimated at approximately £2.7 billion”.
However, a source at one of Octopus’s competitors said: “It is possible that the fall in prices will lead to positive returns, but there are still many unknowns in terms of where gas prices will go this winter and there is no transparency around the terms of a deal , so returns are difficult to estimate.”
Of the Bulb customer transfer, Jackson said: “This begins to end huge financial exposures for taxpayers and paves the way for a better and more secure future for Bulb staff and customers.
“For now, we would ask Bulb customers to stay calm. They will still be looked after by the Bulb team. We will contact customers as and when their account is ready to move to Octopus’ award-winning systems.”
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