The UK is considering offering state-backed loans to energy firms after wholesale gas prices soared, prompting big suppliers to ask for support from the government to cover the cost of taking on customers from companies that have gone bust.
Wholesale gas prices have risen in the past few months as economies reopen amid the easing of the COVID-19 pandemic and high demand for liquefied natural gas in Asia pushed down supplies to Europe, leading to quirks such as a shortage of carbon dioxide.
The rise in prices has already forced four small energy suppliers to cease trading in the past few weeks and British Secretary of State for Business, Energy and Industrial Strategy Kwasi Kwarteng held emergency talks with executives from National Grid PLC, Centrica PLC, EDF Energy and the Office of Gas and Electricity Markets (OFGEM) regulator on Saturday.
“If a supplier fails, OFGEM will ensure customers’ gas and electricity supply will continue uninterrupted,” Kwarteng wrote on Twitter.
“If a supplier of last resort is not possible, a special administrator would be appointed by OFGEM and the Govt. The objective is to continue supply to customers until the company can be rescued or customers moved to new suppliers,” he wrote.
Kwarteng said he was yesterday scheduled to hold meetings with the energy industry and consumer groups.
Britain’s largest suppliers are requesting a multibillion-pound emergency support package from the government to help them survive the crisis, including the creation of a “bad bank” to absorb potentially unprofitable customers from failing rivals, the Financial Times reported.
The BBC reported that the government was considering state-backed loans to keep firms afloat.
Firms were beginning to be more hesitant about taking on new customers through regulator OFGEM’s supplier of last resort scheme, a source at one large energy company said.
Under the scheme, energy firms bid to take on the customers from those companies that have gone bust, usually offering to honor any outstanding credit.
Companies typically hedge their customer’s needs many months in advance so taking on new customers at this stage would likely mean buying their energy at the current elevated wholesale price, which is much higher than they are allowed to charge under the price cap.
“OFGEM continues to work closely with government and industry to ensure consumers continue to be protected while global gas prices are high and will speak further on these issues at the industry roundtable today,” OFGEM said.
Surging gas prices have led to an array of stresses in other markets, including a shortage of carbon dioxide after fertilizer plants had to shut.
Carbon dioxide is used to stun animals before slaughter and prolong the shelf-life of food. Kwarteng also met Tony Will, chief executive of CF Industries Holdings Inc, the country’s largest domestic supplier of carbon dioxide.
Benchmark wholesale British gas prices have more than trebled to record highs this year due to several factors, including low stock levels, robust demand in Asia making it more difficult to attract liquefied natural gas cargoes and maintenance issues at key infrastructure.
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