Energy Suppliers – Government Intervention

We’re still waiting for clarity on any potential government intervention in the energy crunch, as larger energy suppliers take on new customers whose energy supplier has gone out of business. The current number stands at more than 2 million homes, but some of these will not have hedged for the additional customers.

It is estimated that the Supplier of Last Resort (SoLR) cost will run into the hundreds and possibly as much as £500 per customer, pushing the cost of the energy crunch into billions. How long can even the largest energy suppliers continue to take on new customers without financial support?

 

Government Confusion

In September, Bloomberg reported that UK energy firms were seeking a bailout, and Peter McGirr, founder of Green reported that they had hedged, but still failed. McGirr, referring to the fertiliser business, added, “Why do they get a bailout and we don’t?"

Initially, Business Secretary, Kwasi Kwarteng, told MPs: “The government will not be bailing out failed companies.” However, he has since told the BBC’s The Andrew Marr Show: “I’ve not asked for billions, we’ve got existing schemes. I’m working very closely with Rishi Sunak, the chancellor, to get us through this situation.”

Energy suppliers are continuing to go out of business, yet the longer this state of flux continues, the more likely it is that larger suppliers will simply have no option, but to refuse to take on SoLR customers.   Earlier in the month, Philippe Commaret, EDF Energy Managing Director for Customers, questioned its ability to take on more customers of failed suppliers on BBC’s Radio 4 Today show.

 

What are the options?

Various options have been floated:

  • Emergency price cap freeze
  • Delay in the investment in the UK's transaction to net-zero
  • Emergency cut to the UK’s Emissions Trading Scheme (UK ETS), an incentivisation for energy companies to use a lower-carbon form of production.

All are simply unfeasible as they would lead to an immediate impact on energy bills, a wholesale market collapse, or investment loss.  It is more likely that there is a commitment to review the price cap more often than every 6 months. 

A more likely option would be a temporary customer rebate, where the government reduces energy bills immediately, but recuperates the cost via a yearly levy per customer. This option would still put pressure on UK home finances.

A temporary option could be to increase the Warm Homes Discount, however, this would still lead to a small increase in energy bills for those who do not receive the discount.

Alternatively, is a part-nationalised quasi-supplier to hold customers of collapsed suppliers on a short-term basis. This would be a similar process to the UK bank rescue package in 2008 as a response to the global financial crisis. In addition to financial support, seven central banks from the UK, United States, Europe China and Canada also began a coordinated effort to calm the crisis by cutting interest rates by 0.5%.

 

About Energy Angels

Wolverhampton-based Energy Angels aim to make housing associations and social landlords substantial savings each year through reduced energy costs and time savings.

Energy Angels believe that any housing associations and social landlords serious about reducing their energy and administration costs should access our void energy management team. We ensure smart meters are installed in homes during void periods and help is available to manage residents' future energy usage and costs.