UK energy groups ask for government ‘bad bank’ to weather gas crisis

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Britain’s largest energy group is demanding billions of pounds of emergency packages from the government to survive the crisis caused by soaring gas prices.

UK business and energy secretary Kwasi Kwaten will meet with regulator Ofgem on Sunday and meet with energy suppliers in person on Monday. The cost of natural gas and electricity.

Those who are familiar with Weekend talks Given the magnitude of the crisis, the largest energy suppliers are asking the government for substantial help to absorb potentially millions of customers from failing companies, accommodating deficit customers they can’t. Absorb says it may demand the creation of a “Northern Rock-style bad bank” to do.

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 is said to be considering a proposal, admitting that significant intervention may be needed for fear that existing emergency response plans may be inadequate, and allies said. Plans C, D, etc. “are being considered.

“We need to make a lot of emergency response plans,” said an ally with a business secretary.

Most household invoices 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 proposal is to create a “bad bank” that will take on deficit customers from failed suppliers, reminiscent of the peak of the 2008 financial crisis, and avoid weakening otherwise strong companies. Designed for.

“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.

Octopus Energy, one of the UK’s fastest-growing energy providers, said earlier this month that it “substantially subsidizes customers with over £ 5m a month.”

“The rise in gas prices is expected to reduce the number of under-operated or under-supported suppliers, and some more,” the company said on Sunday. We are working with other companies, including Eon, to urge the government to move environmental taxes from electricity prices and lower customer bills.

Energy supplies to existing customers are largely hedged in the futures market by the largest energy companies and can remain profitable, while new customers can plan gas and electricity volumes in advance. This is not possible because it is not. 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, CF Industries shut down production at two large fertilizer plants in the UK last week.

Mr. Quarten met with CF Industries on Sunday to discuss options for resuming production at the Cheshire and Teesside plants, business secretary allies said.

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 was true for domestic sources, as gas field operators performed maintenance later than last year.

In a series of tweets on Saturday, Kwarteng said he would hold a roundtable with the industry on Monday to “make a plan to move forward.” He said executives assured him that the security of Britain’s gas supply was “not the cause of imminent concern.”

However, he is told by his colleagues that he is worried about the impact of the crisis on consumers and future competition.

UK energy groups ask for government ‘bad bank’ to weather gas crisis Source link UK energy groups ask for government ‘bad bank’ to weather gas crisis

The post UK energy groups ask for government ‘bad bank’ to weather gas crisis appeared first on California News Times.

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