(qlmbusinessnews.com via bbc.co.uk – – Mon, 20th Sept 2021) London, Uk – –
The government is considering offering emergency state-backed loans to energy companies as firms battle to stay afloat amid surging gas prices.
Business Secretary Kwasi Kwarteng will hold crisis talks with industry bosses including Centrica and E.On on Monday.
High demand for gas and reduced supply are behind a surge in wholesale prices.
Consumers are protected from sudden hikes through the government's energy price cap, which is the maximum price they can be charged.
But that also means energy firms are unable to pass on higher wholesale costs to their customers, which is forcing some companies to go out of business. The UK's sixth largest energy company, Bulb, is seeking a bailout, while four smaller firms are expected to go bust in the coming days as a result.
It is understood that Mr Kwarteng is “reluctant” to bail out smaller companies but is concerned consumers may end up on more expensive tariffs when they are switched to a new supplier.
Customers are automatically switched to a tariff provided by the new supplier. This is a tariff agreed with the regulator Ofgem, but it may well be more expensive than the deal they had with the former company which went bust.
At the beginning of 2021 there were 70 energy suppliers in the UK, but industry sources have said there may be as few as 10 left by the end of the year.
In recent weeks, 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.
PfP Energy and MoneyPlus also stopped trading earlier in September.
Recent price rises have left some companies unable to provide their customers with the energy they have paid for.
If a supplier fails, the energy watchdog Ofgem will make sure affected households continue to be supplied, and will not lose money owed to them if they have been paying their bills through direct debit.
A new energy supplier would be responsible for taking on any credit balances a customer may have.
The business secretary has been in talks with energy providers and Ofgem over the weekend and is holding a further meeting this morning to explore solutions to the crisis.
What happens if your energy supplier goes bust?
- Customers will still continue to receive gas or electricity even if the energy supplier goes bust. Ofgem will move your account to a new supplier but it may take a few weeks. Your new supplier should then contact you to explain what is happening with your account
- While you wait to hear from your new supplier: check your current balance and – if possible – download any bills; take a photo of your meter reading
- If you pay by direct debit, there is no need to cancel it straight away, Citizens Advice says. Wait until your new account is set up before you cancel it
- If you are in credit, your money is protected and you'll be paid back. If you were in debt to the old supplier, you'll still have to pay the money back to your new supplier instead
Why are gas prices so high?
Industry group Oil & Gas UK said wholesale prices for gas had increased by 250% since January – with a 70% rise since August.
The rise in gas prices has been blamed on several factors, including a cold winter which left stocks lower than usual, high demand for liquefied natural gas from Asia and a reduction in supplies from other countries. Low winds meaning less renewable energy is being generated and outages at some nuclear stations have also contributed.
Prime Minister Boris Johnson, who is in New York for a UN General Assembly meeting, said the problem was “temporary”.
He added that he was “very confident” in the UK's supply chains and that market forces should be “very, very swift” in fixing the issues but that government would help where it could.
Failing firms
The process for dealing with failing firms has also come under pressure. Taking on new customers is less attractive for surviving companies, and smaller ones in particular, because of the rising costs.
State-backed loans may be offered to encourage firms to take on customers, although Foreign Office minister James Cleverly told BBC Breakfast on Monday that “ideally” businesses should stay afloat “through their own efforts.”
Peter McGirr, the boss of Green, an energy supplier with about a quarter of a million customers, warned on Monday that without any government support it would be unlikely to survive winter.
“It's not that I've a bad business model or a bad business… we just don't have as deep pockets to keep us going through this crisis.”
Senior executives at some of the largest companies also said the energy price cap – supported by both Labour and Conservative politicians – had played a part in bringing about the current crisis.
“You can legislate to protect the consumer – but that can bankrupt the supplier,” said one senior industry source.
“The price cap is now the cheapest deal in the market and providing new customers with energy at that price is loss-making.”
What are the knock-on effects?
Other sectors and firms are also vulnerable to higher gas prices
Energy intensive fertiliser producers have shut down, which has created a shortage of the by-product of production, carbon dioxide – widely used in the production and storage of food products.
Iceland's managing director Richard Walker told the BBC on Monday that the carbon dioxide shortage must be prioritised to limit any potential disruption for supermarket supplies, which are also being affected due to a shortage in HGV drivers in the UK, partly caused by the pandemic and Brexit.
Adam Couch, the boss of pork producer Cranswick told the BBC on Sunday that the food industry was “already at tipping point ahead of the demanding Christmas period”.
Supermarket Ocado added that it had “limited stock” of some frozen items due to gas shortages, while another supermarket told the BBC the situation was “escalating quickly”.
