Government mulls bailout for embattled energy sector - reports
By Abigail Townsend
Date: Monday 20 Sep 2021
(Sharecast News) - The UK government is considering emergency steps to help bailout the energy industry, it was reported on Monday, as wholesale gas prices spiral.
According to the BBC, the government is looking at offering state-backed loans to help keep struggling firms afloat, and to encourage firms to take on customers from rivals that collapse. The Financial Times said the government was also considering creating a Northern Rock-style 'bad bank' to absorb potentially unprofitable customers from failing firms.
Citing people familiar with the matter, the newspaper added that emergency calls had taken place over the weekend, with the largest energy suppliers asking government for "substantial support" to handle what could be millions of customers from failing companies. Most existing household tariffs are not enough to cover the cost of supplying new customers, the FT noted.
Business and energy secretary Kwasi Kwarteng is understood to be meeting suppliers face-to-face on Monday to discuss the crisis and potential solutions.
Wholesale gas prices have surged this year and are around 250% higher than they were in January, according to industry body Oil & Gas UK. A number of factors have contributed to the hike, including higher global demand as economies reopen, maintenance issues, lower solar and wind output, and lower supplies from Russia. Traders are concerned the crisis will only worsen as Europe heads into winter.
According to the FT, the cost of buying enough wholesale gas and electricity in the spot market to supply an average household is around £1,600. But the price cap on energy bills, imposed by the regulator Ofgem after government moved to stop so-called 'rip off' prices, is £1,277.
Larger energy suppliers hedge against fluctuations in prices, but smaller players are either unwilling or unable to do so.
A number of small energy companies have already ceased trading this year, including Edinburgh-based People's Energy and Utility Point in Dorset. Bulb, the UK's sixth-largest energy company, is reported to be seeking a government bailout to prevent it collapsing. The FT said it was working with Lazard to help secure fresh funding. A spokesman for Bulb, which started trading in 2015, said: "From time to time we explore various opportunities to fund our business plans and further our mission to lower bills and lower CO2.
"Like everyone in the industry, we're monitoring wholesale prices and their impact on our business."
At the start of 2021 there were around 70 energy suppliers in the UK, but industry sources have been widely quoted as saying as few as between six and 10 could be left by the end of the year because of the crisis.
Prime minister Boris Johnson has insisted the problem is "temporary" but said government would help where it could. James Cleverly, Foreign Office minister, told the BBC's Today programme on Monday that "ideally" businesses should stay afloat "through their own efforts", rather than through government intervention.
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