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

UK energy updates

UK Business and Energy Secretary Kwasi Kwarteng is making emergency calls to some of Britain’s biggest energy groups today to stave off a crisis in the sector, as fears grow that record high gas and power prices could send a “tsunami” of suppliers to the wall.

Five smaller suppliers have gone out of business since the start of August as surging 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.

There are growing concerns among CEOs of the bigger suppliers that the five, including People’s Energy and Utility Point, with 570,000 domestic customers between them, are just the tip of the iceberg.

Energy consultancy Baringa has said there may be “less than 10 suppliers by the time we come through winter”. At the end of March, there were still 49 domestic suppliers, according to the latest available market share data from Ofgem.

A director at one big energy supplier called the situation “unprecedented” and said there may be a “tsunami” of supplier failures which would put severe pressure on Ofgem’s process for ensuring the customers of those businesses are reallocated to another company.

Michael Lewis, the chief executive of Eon UK, told the Financial Times in an interview last week that the situation facing suppliers was “extremely challenging” as the market had already been “fragile” even before the recent spikes in wholesale prices.

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He pointed out that the industry was, on aggregate, lossmaking following the introduction in 2019 of a price cap for 15m households that limits suppliers’ margins.

Ofgem on Friday appointed EDF Energy to take on 220,000 customers from Utility Point, but it is yet to name an alternative supplier for People’s Energy customers.

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

“We do not expect supply emergencies this winter,” he said.

The talks would take the form of individual calls to the chief executives of the big 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 low stocks. Storage facilities were left depleted after extended cold weather last winter.

Lower supplies from Russia, as well as domestic sources as gasfield operators undertook maintenance delayed from last year, limited injections into storage facilities over the summer.

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Soaring gas prices have had a knock-on effect on power prices, particularly in countries such as Britain where the fuel is the biggest single source of electricity generation.

Low wind speeds have added to the high electricity prices, while outages at other power stations, plus a fire at Britain’s main subsea electricity cable from France on Wednesday, have led to concerns over whether there will be sufficient supplies over winter.


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