The UK government is considering offering emergency state-backed loans to energy companies as firms struggle to stay afloat amid a surge in wholesale gas prices.
Highlighting the severity of the issue and the government’s supportive response, Prime Minister Boris Johnson intimated “we’ll have to do everything we can” to prevent those companies from failing. He noted smaller suppliers face a potential ruin as price hikes mean they cannot fulfil their promises to customers.
Thus, the current crisis situation has necessitated Business Secretary Kwasi Kwarteng to hold planned crisis talks with industry leaders including Centria and E.On today, September 20, 2021.
OGUK, which represents the offshore oil and gas industry, reported wholesale prices for gas have surged 250 per cent since January- with a 70 per cent rise since August alone.
The rise in gas prices has been blamed on a number of factors, including a cold winter that left stocks depleted, high demand for liquefied natural gas from Asia, and a reduction in supplies from Russia.
Given these conditions, consumers are protected from sudden hikes through an energy price cap set by the government. This price cap represents the maximum price consumers can be changed on a default tariff.
But that also means energy firms are unable to pass on higher wholesale costs to their customers, which has triggered series of exits by some companies in the industry. Currently, the UK’s sixth-largest energy company, Bulb, is seeking a bailout, while four smaller firms are expected to exit in the coming days as a result.
At the beginning of the year, there were 70 energy suppliers in the UK, but industry players have indicated there may be as few as 10 left by the end of the year.
Energy companies seek a ‘bad bank’
Quite recently, four small energy companies have ceased trading, including Edinburgh-based People’s Energy, which supplied gas and electricity to about 350,000 homes and 1,000 businesses, and Dorset-based Utility Point which had 220,000 customers.
The Financial Times reported the industry seeks the creation of a so-called “bad bank” to absorb unprofitable customers from firms that fail.
Prime Minister Boris Johnson is reported to have said: “I think people should be reassured in the sense that yes there are a lot of short-term problems not just in our country, the UK, but around the world…
“This is really a function of the world economy waking up after COVID. We’ve got to try and fix it as fast as we can, make sure we have the supplies we want, make sure we don’t allow the companies we rely on to go under. We’ll have to do everything we can.
“But this will get better as the market starts to sort itself out, as the world economy gets back on its feet.”Prime Minister Boris Johnson
However, Mr Kwarteng appears ‘reluctant’, to bail out smaller companies but is concerned costs will hike further. Meanwhile, a switch to a new supplier may also lead to exorbitant tariffs which consumers will have to bear.
Therefore, the outcome of today’s meeting is very crucial for both consumers and suppliers, as it will determine whether the hopes that energy companies have for a bail out is likely to happen.