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

UK Energy Updates

UK Business and Energy Secretary Kwasi Kwarteng is today issuing emergency appeals to some of Britain’s biggest energy groups to avert a crisis in the sector, as fears grow that record gas prices and 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 still 49 domestic suppliers, according to the latest data available on Ofgem’s market share.

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.

Michael Lewis, managing director of Eon UK, told the Financial Times in an interview last week that the situation for suppliers was “extremely difficult” because the market was already “fragile” even 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.

Kwarteng said in a tweet on Saturday morning that he would speak with the managing directors of the UK’s largest energy suppliers and operators today, but added that “Britain has a diverse range sources of gas supply, with sufficient capacity to more than meet demand “.

“We don’t expect supply emergencies this winter,” he said.

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.

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”.

The talks would take the form of one-on-one appeals to managing directors of major suppliers, including British Gas and ScottishPower, people familiar with the talks said.

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 of 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 to storage facilities during 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 outages of 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.

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