UK energy companies in line for emergency loans to take on customers

UK energy updates

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Britain’s energy companies could be offered emergency state-backed loans to take on “unprofitable” customers from failing smaller suppliers, as ministers struggle to contain the crisis sparked by high gas prices.

Kwasi Kwarteng, business secretary, will on Monday hold further talks with energy companies and the regulator Ofgem, but accepts that several suppliers could go to the wall in the coming days.

Kwarteng is also preparing a deal to tackle the related crisis in carbon dioxide production, which is threatening to worsen supply chain disruption — the gas is used in the production of meat, steel, food packaging and fizzy drinks.

The minister held talks on Sunday with Tony Will, chief executive of US company CF Industries, which makes 60 per cent of Britain’s CO2 as a byproduct of fertiliser production at two plants in Cheshire and Teesside.

Kwarteng is looking to temporarily subsidise fertiliser production, which has been made uneconomic by high gas prices, according to officials briefed on the talks and will discuss the plan with the Treasury on Monday.

Gas prices in Britain and Europe have hit repeated highs in recent weeks as traders fear the continent is heading into winter with low stocks. This follows lower supplies from Russia as well as domestic sources as gasfield operators undertake maintenance delayed from last year.

The rise in prices has threatened a serious economic crisis. Kwarteng has been warned by the energy sector that out of 55 companies supplying the market, only 10 could be left standing by Christmas.

Rather than trying to save those smaller companies, Kwarteng is looking to offer financial support to help remaining companies take on customers who would otherwise be unprofitable.

Most existing household energy tariffs are not enough to cover the cost of supplying new customers, making large energy companies extremely reluctant to take them on without government support.

Kwarteng’s allies say the minister wants to “help ease customer transition to new suppliers”. State backed loans are being considered as one way to encourage companies to take on new customers.

The UK’s largest energy suppliers are requesting a multibillion-pound emergency support package from the government to help them survive the crisis. People familiar with emergency calls that took place over the weekend say the situation may require the creation of a “Northern Rock-style bad bank” to house customers that suppliers could not take on without losing money.

Speaking on a flight to New York, Boris Johnson sought to reassure the public and the gas industry that the challenges were temporary and the UK was “very confident” in its supply chains.

Johnson also committed to “do whatever we can” to support the struggling sector and keep the public supplied with gas. “First of all I want to give a general reassurance that the problems we’re seeing are temporary,” Johnson said. 

“They are caused by the resurgence of the global economy as Covid starts to retreat in parts of the world. Particularly in Asia there is a phenomenal demand for gas — LNG in particular.

“And you’re seeing that demand affect supply around the world. That’s basically what’s going on. As the world economy starts firing on cylinders — to use a hydrocarbon metaphor — things will start to smooth out.”

Johnson added: “I have no doubt that supply issues will be readily addressed. We’re very confident in our supply chains.

“But in the meantime, we will make sure we work with all the gas companies to do whatever we can to keep people’s supplies coming, to make sure they don’t go out for business, and to make sure we get through the current difficult period.”