UK government considering state loans for energy companies

by | Sep 21, 2021

The UK government is considering offering state-backed loans to energy companies, the business secretary confirmed on Tuesday, as the sector battles soaring wholesale gas prices.
A range of factors have conspired to push up benchmark European gas prices by around 250% this year. Demand has surged as economies around the world emerge from the pandemic, but supply has been affected by maintenance issues, lower solar and wind output, and below normal supplies from Russia, Europe’s biggest supplier.

A number of smaller companies, who unlike larger rivals have been unable or unwilling to hedge against price fluctuations, have already collapsed and more are expected to cease trading.

The government is therefore considering offering state loans to energy companies that take on customers from failed companies.

Asked by Sky News on Tuesday if loans were an option, Kwasi Kwarteng said: “There are lots of options.

“It costs a company to absorb up to hundreds of thousands of customers from another company that’s failed, that cost’s money, and there may well be a provision for some sort of loan, and that’s been discussed.”

He claimed around between five and eight companies exit the market in an average year, but conceded that could be higher this year.

However, he cautioned: “I don’t think we should be throwing taxpayers’ money at companies which have been, let’s face it, badly run. A number of these companies have been badly run. I don’t want there to be a reward for failure.”

On Monday, British Gas owner Centrica confirmed it would take on around 400,000 People’s Energy customers through Ofgem’s supplier of last resort process. The Scottish firm ceased trading on 14 September.

Kwarteng also said that the carbon dioxide shortage, which has been indirectly caused by soaring gas prices, could be solved “by the end of the week”. Last week US firm CF Industries shuttered two fertiliser plants in the north of England because of the surge in gas prices. Carbon dioxide, which is used in the food industry and to stun animals before slaughter, is a by-product of the fertiliser process.

Kwarteng told the BBC’s Today programme he had spoken to Tony Will, CF Industries’ chief executive, on Sunday, and told Sky News: “I hope we have a very clear plan to get CO2 production going again. I’m very confident and hopeful that we can sort it out by the end of the week.”

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