insiderblmThe government is considering offering emergency state-backed loans amid fears for struggling energy companies and soaring bills for customers.
Business Secretary Kwasi Kwarteng held 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 energy price cap, which is the maximum price they can be charged on a standard tariff.
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.
Higher bills
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 if their existing energy provider collapses.
Customers are automatically switched to a tariff – or payment plan – provided by the new supplier. This is a tariff agreed with the energy regulator Ofgem, but it may well be more expensive than the deal they had with the former company which went bust.
Millions of households in England, Wales and Scotland are already facing a 12% rise in their energy bills from October when a higher price cap comes into force.
Ofgem will review the price cap in February and any changes would come into force in April. There has been speculation that the energy regulator could lift the cap between now and next year to allow firms to charge customers more to cope with rising wholesale gas prices.
When asked to rule out removing the energy price cap, a spokesman for the prime minister said he was “not aware” of any change.
Mr Kwarteng said he will provide an update on the “gas price situation” to the House of Commons later on Monday.
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. Its regular customers will be taken on by British Gas, Ofgem confirmed on Monday.
Dorset-based Utility Point, which had 220,000 customers, PfP Energy and MoneyPlus also stopped trading earlier in September.
If a supplier fails, 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 also be responsible for taking on any credit balances a customer may have.
In an open letter sent to the prime minister, chancellor, business secretary and Ofgem, several smaller energy firms said: “We feel our voice, as suppliers of all different sizes, has not been heard.”
Signed by the likes of Green, AMPower, Neon Reef and Tru Energy, it called for a support package for all suppliers, a review of the price cap and for smaller firms to be included in future discussions on the future of the energy market.
It was sharply critical of Ofgem, saying it was “currently unfit to regulate an industry they have appeared to have a vested interest in or turning a blind eye to the market returning to a selective monopoly and a reduction in competition”.
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 increase 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 lower 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 the BBC 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 that without any government support the outlook for his firm “is looking bleak” and it would be unlikely to survive winter.
“It’s not that I’ve a bad business model… we just don’t have deep pockets to keep us going through this crisis,” he said.
Some of the largest companies also said the energy price cap – supported by both Labour and Conservative politicians – had helped trigger 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?
Energy intensive fertiliser producers have shut down, which has created a shortage of the by-product of production, carbon dioxide.
Food manufacturers and supermarkets have urged action because carbon dioxide is used to stun animals prior to slaughter and to keep food fresh for storage and transport.
Iceland’s managing director Richard Walker told the BBC 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 BBCÂ that the food industry was “already at tipping point ahead of the demanding Christmas period”.
Supermarket Ocado said it had “limited stock” of some frozen items due to gas shortages, while another supermarket told the BBC the situation was “escalating quickly”.
