Britain’s largest energy supplier has dozens of governments to survive the crisis caused by soaring gas prices, including the creation of a “bad bank” to absorb potentially unprofitable customers from rival failures. Requesting a £ 100 million emergency assistance package.
UK Business and Energy Secretary Kwasi Kwaten will meet with regulator Ofgem on Sunday in an emergency meeting with energy suppliers on Monday. Record wholesale costs for natural gas and electricity.
Those who are familiar with Weekend talks The largest energy suppliers are asking the government for substantive support to handle potentially millions of customers from failed companies, accommodating customers who couldn’t accept without losing money. He says he may demand the creation of a “Northern Rock-style bad bank” to do so.
No decision has been made yet, but a proposal to the government will help the industry believe it needs to do long-term damage to the sector in the event of a large number of energy suppliers failing in the coming weeks. Clarifies the scale of.
Kwarteng was said to be considering the proposal and accepted that significant intervention could be required, fearing that existing emergency response plans might not be sufficient. The allies said they were looking at “Plans C, D, etc.”
“We need to make a lot of emergency response plans,” said an ally with a business secretary.
Most existing household energy rates are not enough to cover the cost of supplying new customers, and large energy companies are very reluctant to undertake them without government support.
The meeting with the government focused on three different approaches, confirmed by four people familiar with the situation, and emphasized that the minister “does not want to reward the failure.”
One suggestion is the formation of a “bad bank” that takes on unprofitable customers from failed suppliers. This is a move reminiscent of the steps taken during the peak of the 2008 financial crisis, with the aim of avoiding the weakening of otherwise strong companies.
“This will allow the industry to survive the current crisis,” said one familiar with the talks.
“Parking the problem in a bad bank makes it easier to sort out imminent crises and acquire long-term shares, which allows the government to handle multiple bankrupt suppliers at the same time. increase.”
However, a second person warned that such an approach can be difficult to manage in practice, especially given that the suppliers are all running on different operating systems. There is also the issue of whether Ofgem is responsible for customer care and grievance handling.
Another option would be to see the government take on debt for a larger supplier if they suffer losses by taking on customers.
In the third route, Ofgem intervenes, and instead of moving the customer of a failed supplier to another provider, it overcomes an imminent crisis and manages the company, effectively nationalizing it, and the government suffers losses.
Two people familiar with the talks said the cost of the final package could reach billions of pounds for the government, given the number of companies expected to collapse in the coming weeks. ..
Soaring wholesale prices have already closed five small suppliers since early August due to inadequate hedging strategies or weak balance sheets that couldn’t cover the cost of energy committed to supply. increase.
There is growing concern among the CEOs of major suppliers that five companies, including People’s Energy and Utility Point, have 570,000 domestic customers and are just the tip of the iceberg. Further failures in the next 7-10 days may require the transfer of 1 million customers to new suppliers.
The industry has warned that only 6 to 10 of the 55 companies in this sector can be left unattended by the end of the year.
Energy company executives absorb under Ofgem’s “last resort supplier” system What if each customer could lose hundreds of pounds a year and the worst concerns about the number of industry failures spread He says it will be impossible to accept millions of customers.
The cost of buying enough wholesale gas and electricity to supply the average household in the spot market is estimated to be around £ 1,600 per year, but the energy price Ofgem has currently set a price cap of £ 1,277. It has already been raised by 139 pounds. last month.
Energy suppliers say they are effectively subsidizing their customers at current price levels.
Octopus Energy, one of the UK’s fastest growing energy providers, is now considered a large supplier. follow us”. Join other companies, including Eon, and join the government Move ecotax Helps reduce customer bills from electricity bills.
Energy supplies to existing customers are largely hedged in the futures market by the largest energy companies and can remain profitable, but for new customers, pre-plan the amount of gas and electricity. This is not possible because it is not done. They must be purchased from the wholesale market.
“Energy suppliers have already provided hundreds of millions of pounds of funding since the outbreak of the pandemic,” said Emma Pinchbeck, CEO of the industry group Energy UK.
“The industry will continue to support this winter, a time of great difficulty for the sector itself. This week, more suppliers are showing off from the market.”
The gas crisis is echoing the entire UK industry, including the threat of food supply.Meat industry is facing Serious shortage Due to the rise in carbon dioxide after soaring gas prices, US company CF Industries shut down production at two large fertilizer plants in the UK last week.
Quarten met with CF Industries boss Tony Will on Sunday about options to resume production at Cheshire and Teesside plants, including the possibility of government financial support to avoid exacerbating the supply chain crisis. We talked.
CO2 is a by-product of fertilizer production, but it is currently uneconomical for CF to make it. Kwarteng will discuss with a cabinet colleague on Monday a temporary financial package to reopen the plant to resume fertilizer and CO2 production.
Gasoline prices in the UK and Europe have repeatedly hit highs in recent weeks as traders fear the continent is heading for winter. Russia The same is true for domestic sources, as gas field operators are performing maintenance later than last year.
Kwarteng said in A series of tweets On Sunday, a “special manager” could be appointed to a company that was “impossible” to find a last resort supplier. “The purpose is to continue to supply customers until the company is rescued or the customer moves to a new supplier,” he added.
But business secretaries say by colleagues they are worried about the impact of the crisis on consumers and future competition if fallout from shock sees a return to a more concentrated market dominated by large corporations again. It is
British energy group demands state “bad bank” to survive gas crisis
Source link British energy group demands state “bad bank” to survive gas crisis