Octopus Energy has asked the government for £1billion taxpayer funding to seal the takeover of distressed rival Bulb.
Sky News has learned that private company Octopus is set to strike a deal with ministers to acquire its smaller competitor, which collapsed late last year.
City sources said over the weekend that a deal would involve Octopus paying between £100m and £200m to tackle Bulb’s customer base of 1.6m.
It would also include a “meaningful” profit-sharing agreement to give the government a return for several years on revenue from Bulb customers.
Octopus is seeking £1billion government funding because Bulb is not covering its bulk gas purchases, exposing it to soaring prices during an energy crisis that has worsened since the invasion of Ukraine by Russia.
A source familiar with the talks said the £billion would be fully repaid by the company and denied descriptions of any further taxpayer support as dowry.
Insiders said over the weekend that a deal between Octopus and the government to take over Bulb could be reached within weeks, although they warned that the complexity of the deal could still prevent it from happening.
Bulb’s collapse last November was the biggest among dozens of vendor failures, with industry regulator Ofgem coming under heavy criticism for its approach to licensing new entrants to the market.
The company’s administrator, Teneo Restructuring, and the investment bank Lazard are orchestrating the search for a buyer.
Octopus Energy tabled the only formal bid for Bulb before a deadline last month, meaning ministers have few options to remove the financial burden the company has become for taxpayers.
If Octopus strikes a deal, it would bring the likely total government exposure from the collapse of Bulb to over £3bn, including the £1bn dowry.
The Independent Office for Budget Responsibility said in March the bailout would require more than £2bn to cover its operating losses.
The profit-sharing agreement, which would last for several years, would, however, allow the government to recoup a small part of the cost for taxpayers.
One person involved in the talks described it as “a fair deal for all parties”.
Paying back the £1billion hedging cost package over time, combined with the initial sale price and profit sharing, could mean Bulb’s failure ultimately costs taxpayers less than £2billion , according to a source.
A bailout by Octopus Energy would also secure Bulb customers under the leadership of a company seen as an industry leader.
Some industry executives believe Bulb is losing up to £5m every day due to its inability to hedge forward gas purchases.
Octopus Energy’s breakthrough over its smaller competitor would increase its customer base to 5 million UK households and cement its status as one of the largest utilities operating in the UK.
Founded by Greg Jackson, its chief executive, it has raised over £1 billion from a blue-chip group of investors.
This week it announced it had raised $550 million, including $325 million committed to support the growth of its UK and international energy technology platform, Kraken.
“Octopus will continue to do everything in its power to help its customers through the energy crisis, while investing in better solutions to ensure it never happens again,” Mr. Jackson said.
Centrica, the owner of British Gas, and Masdar, an Abu Dhabi-based company, also reportedly considered offers for Bulb, but neither offer materialized.
The rush to complete the sale of Bulb is accompanied by a forecast that annual household energy bills will approach £4,000 next year – a figure unthinkable just a few months ago.
A recent prediction from Cornwall Insight suggested the industry price cap will reach £3,500 in October.
Michael Lewis, chief executive of E.ON, which supplies more than 4 million UK households, told Sky News business correspondent Paul Kelso that up to 40% of households could be forced into fuel poverty this winter.
Treasury approval will also be required to sign an agreement.
Octopus Energy is advised by KPMG in the context of the discussions on the takeover of Bulb.
Octopus Energy and Bulb declined to comment on Saturday, while the Department for Business, Energy and Industrial Strategy has been contacted for comment.