The Energy Market and Supply Risks – What Happens If an Energy Trader Goes Bankrupt?

• Can industrial users be left without electricity and gas if their trader goes bankrupt?
• If the user fails to pay, they are cut off — but what can the user do if it is the trader who fails to perform?
• Does it protect an industrial user from an energy price surge to have contracted in good time, years in advance, for electricity and gas at a good price?
• In energy trading, alongside price competition, can a “quality” difference be identified?
• Is there any difference between one trader’s electricity or gas and another’s?
• How do the laws protect energy traders, and how do they protect users?
• Is there any room to manoeuvre in the contractual terms if the energy trader applies general terms and conditions designed to protect its own interests?
• Are general terms and conditions set in stone?
• Can one depart from the general terms and conditions?
• What are the first signs that an energy trader’s service is becoming uncertain?
• Can losses be reduced by legal means if an energy trader’s service becomes uncertain?

Industrial users generally lock in their electricity and gas procurement years in advance; this is an essential precondition for the predictability of their operations. If they succeed in contracting at a good price, the user is not affected by price increases, and the trader is obliged to supply at the contracted price. Recently, however, in many cases this is not what happened: many large users, despite having concluded an annual contract for electricity and gas at a good price, are forced to pay a multiple of the contracted price if they do not want to be left without energy.

The weak points of a sector’s regulation are always brought to light by a crisis, and this is true of the energy sector as well. Rules are written for known, predictable circumstances, whereas in a crisis the trouble is usually caused by circumstances that could not have been anticipated. And at such times, in the situation that has arisen, the legal protection of the various interests becomes uncertain.

What works well under normal market conditions is not necessarily usable in times of crisis. In normal operation, energy trading is generally a good business, and energy traders rarely go bankrupt.

Since 2021, a significant price increase has been observed on the international energy market. Following the 2020 downturn caused by Covid, demand grew significantly in 2021 after the “restart” of consumption, transport and international trade, and the price-driving effect of this was further intensified by the decline in production capacity and the Ukrainian crisis.

One trader operating on the electricity and natural gas market applied for bankruptcy protection in November 2021. Before the bankruptcy proceedings began, the trader had got into a difficult situation and was unable to supply its contractual partners as undertaken in the contract. It suspended the service to some of its partners, even though it would have been obliged to perform under the contract. As a result, the energy supply of the users was endangered, and the network operator raised the prospect of suspending the service (disconnection). The affected users were consequently forced to contract with another trader on significantly less favourable terms (at a higher price). Meanwhile, the bankrupt trader is claiming the consideration for its earlier services and, in its business regulations, excludes the possibility of set-off.