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

UK Energy Updates

UK Business and Energy Secretary Kwasi Kwarteng is making emergency appeals to some of Britain’s biggest energy groups to avert a crisis in the sector, as fears grow that record prices for gas and gas electricity could send a “tsunami” of suppliers to the wall.

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

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 tweet on Saturday morning that he would be speaking to the managing directors of the UK’s largest energy providers and operators. Ofgem, the energy regulator, was also involved in the talks.

“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.”

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 great 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 that while nothing had been decided, 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.

The concern among large suppliers is that taking customers with fixed energy prices would be a loss for their businesses, risking weakening even the largest suppliers.

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-breaking gas prices “are undoubtedly putting pressure” on energy suppliers, but insisted it has “the systems and processes in place to ensure that customer needs are always satisfied “.

This may include appointing a “special administrator” to temporarily manage a failing supplier if an alternative cannot 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 Great 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, FT 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 other offers”, stating that the increase in wholesale energy costs “has an impact on the number of offers that we can currently offer ”.

The offers still offered through comparison sites that the FT examined tended to require consumers to “lock themselves” into a fixed price contract for one, two or three years, with most resulting in exit penalties ranging from $ 15. £ to £ 100.

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