The government is considering offering emergency state-backed loans to energy companies as firms battle to stay afloat amid surging gas prices.
Business Secretary Kwasi Kwarteng will hold crisis talks with industry bosses including Centrica and E.On on Monday.
High demand for gas and reduced supply are behind a recent surge in prices.
Consumers are protected from sudden hikes through the government’s energy price cap, a maximum price they can be charged on a default tariff.
But that also means energy firms are unable to pass on higher wholesale costs to their customers. The UK’s sixth largest energy company, Bulb, is seeking a bailout, while four smaller firms are expected to go bust this week, as a result.
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.
Four small energy companies have ceased trading in recent weeks, including Edinburgh-based People’s Energy, which supplied gas and electricity to about 350,000 homes and 1,000 businesses, and Dorset-based Utility Point which had 220,000 customers.
PfP Energy and MoneyPlus also stopped trading earlier in September.
Recent price hikes have left some companies unable to provide their customers with the energy they have paid for.
The business secretary has been in talks with energy providers and will hold a meeting later to explore solutions to the crisis.
If a supplier fails, the energy watchdog Ofgem will make sure affected households continue to be supplied, and will not lose money owed to them.
A new energy supplier would be responsible for taking on any credit balances a customer may have.
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.
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
- Read more about the next best steps to take here.
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 rise in gas prices 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 a reduction in 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.
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 BBC Breakfast on Monday 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 on Monday that without any government support it would be unlikely to survive winter. through.
“It’s not that I’ve a bad business model or a bad business… we just don’t have as deep pockets to keep us going through this crisis.”
Senior executives at some of the largest companies also said the energy price cap – supported by both Labour and Conservative politicians – had played a part in bringing about 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?
The government is also identifying other sectors and companies that are vulnerable to higher gas prices
Energy intensive fertiliser producers have shut down, which has created a shortage of the by-product of production, carbon dioxide – widely used in the production and storage of food products.
Iceland’s managing director Richard Walker told the BBC on Monday that 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 BBC on Sunday that the food industry was “already at tipping point ahead of the demanding Christmas period”.
Supermarket Ocado added that it had “limited stock” of some frozen items due to gas shortages, while another supermarket told the BBC the situation was “escalating quickly”.