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UK energy groups in emergency talks with government over natural gas crisis


UK Energy Updates

UK Business and Energy Secretary Kwasi Kwarteng on Saturday issued emergency appeals to some of Britain’s biggest energy groups, as fears grow that four more suppliers could go bankrupt in the next 10 days due to record gas and electricity prices.

Five small suppliers have gone out of business since early August, as soaring wholesale prices left companies with insufficient hedging strategies or weak balance sheets unable to cover the cost of the energy they had committed to supply. .

CEOs of the largest suppliers are increasingly concerned that the five, including People’s Energy and Utility Point, with 570,000 domestic customers alone, are just the tip of the iceberg.

Further failures over the next 7-10 days could require the transfer of a million customers to new suppliers.

The concern of suppliers is that taking customers who are on fixed price energy prices would be a loss for their companies, risking weakening even the largest companies.

Energy consultancy firm Baringa said there could be “less than 10 suppliers by the end of winter.” At the end of March, there were 49 domestic suppliers, according to the latest data available on Ofgem’s market share.

Kwarteng said in a series of Tweets that he would meet Ofgem, the regulator, on Sunday to discuss the situation before calling a roundtable with the industry on Monday “to plan a way forward.”

He said officials assured him that the security of UK gas supplies was “not a cause for immediate concern”.

“Britain has a diverse range of gas supply sources, with sufficient capacity to more than meet demand,” Kwarteng said. “We don’t expect supply emergencies this winter.”

“However, our exposure to volatile global gas prices underscores the importance of our plan to build a strong and local renewable energy sector to further reduce our dependence on fossil fuels.”

Kwarteng added that energy security was a “top priority” and that the government was working with Ofgem and gas operators to monitor supply and demand.

A director of a major energy supplier called the situation “unprecedented” and said there could be a “tsunami” of supplier failures that would put severe pressure on Ofgem’s process to ensure that the customers of these companies are reassigned to another company.

Energy suppliers familiar with the talks said if nothing was decided on Saturday, a number of options were being discussed with the government. They indicated that most likely was some form of government guaranteed loan for businesses that hired clients from any vendor that went out of business.

Other options include lowering or eliminating certain levies on consumer bills.

A director of one of the biggest energy companies warned that the market feared some of the biggest suppliers were also struggling and questioned whether some might turn out to be “too big to fail.”

Ofgem acknowledged that record wholesale gas prices “are definitely putting pressure” on energy suppliers, but insisted it has “the systems and processes in place to ensure that customer needs are always satisfied “.

This could include appointing a “special administrator” to temporarily manage a failing supplier if an alternative could not be quickly appointed to absorb customers.

Michael Lewis, managing director of Eon UK, told the Financial Times in an interview last week that the situation for suppliers was “extremely difficult” as the market was already “fragile” before the recent spikes in wholesale prices.

He pointed out that the industry was, overall, in deficit following the introduction in 2019 of a price cap for 15 million households that limits supplier margins.

Ofgem on Friday appointed EDF Energy to take over 220,000 Utility Point customers, but has yet to nominate an alternative supplier for People’s Energy customers.

Record gas prices are having ramifications for the UK economy, forcing the closure of two large fertilizer factories in the north of England this week and threatening the supply of products ranging from meat to steel.

Ed Miliband, the UK’s business secretary, earlier this week accused the government of being “nowhere to be seen”.

“It is a fundamental failure of long-term government planning over the past decade that we are so exposed and vulnerable as a country and it is businesses and consumers that are paying the price,” Miliband said.

The government said the UK has access to a variety of gas supply sources “to ensure that households, businesses and heavy industry get the energy they need at a fair price.”

“We are monitoring this situation closely and are in regular contact with food and agriculture organizations and industry, to help them manage the current situation. ”

Gas prices in Britain and Europe have hit repeated highs in recent weeks as traders fear the continent is heading into winter with record stocks. Storage facilities remained depleted after the prolonged cold weather last winter.

Declining supplies from Russia, as well as domestic sources, as gas field operators undertook delayed maintenance work compared to last year, limited injections into storage facilities over the course of the year. summer.

Soaring gas prices have had a knock-on effect on electricity prices, especially in countries like Britain where fuel is the main source of electricity generation.

Low wind speeds worsened high electricity prices, while blackouts at other power plants, as well as a fire on Britain’s main submarine power cable from France on Wednesday, raised concerns about to sufficient supply in winter.

Energy Switching offers are drying up

Consumers looking to save money by switching energy providers will find it nearly impossible as hundreds of deals are taken off the market, increasing the cost of foreclosure in a fixed rate contract, Claer Barrett, the FT’s consumer editor writes.

Some UK price comparison websites, including Compare the Market, have suspended energy switching services as energy providers restrict the number of tariffs available.

Others, including uSwitch and Moneysupermarket, offered a fraction of the usual number of switch offers. The uSwitch website warns consumers looking for a quote “You may want to wait for more deals,” stating that rising wholesale energy costs “are having an impact on the number of deals that we can currently offer ”.

Offers still offered through comparison sites reviewed by the FT tended to require consumers to ‘lock in’ to a fixed price contract for one, two or three years, with most resulting in exit penalties ranging from £ 15 to £ 100.