U.K. Government Meets With Industry to Avert Chaos: Power Update

(Bloomberg) -- U.K. energy companies are seeking a massive government bailout as a surge in gas and electricity prices threatens to push small suppliers with limited hedging out of business. 

After emergency talks all weekend, Business Secretary Kwasi Kwarteng is meeting industry bosses on Monday. Time is pressing, as the CEO of one energy supplier warned it may not survive the winter without government help. 

Benchmark U.K. gas prices have tripled this year, and jumped as much as 16% on Monday.

The U.K.’s usual mechanism for dealing with failed suppliers -- with customers transferred to a surviving company -- may not work this time as surging market prices make it unprofitable for a company to take on more clients. That’s why large companies are seeking government support to ease the hit. 

As for customers, they are protected for now by a price cap -- which is adding to the pressure on companies -- but that will be revised next year in a new risk to the inflation outlook.

Key Developments

• Companies are seeking a bailout from the government to help them handle the cost of taking on failed suppliers’ customers
• Kwarteng is meeting with energy firms, aiming to stem the potential chaos from a failure of small suppliers
• Centrica Plc shares fall; benchmark gas prices jump 16%

U.K.’s Kwarteng Meeting Energy Industry Bosses (11am U.K.)

Following emergency talks over the weekend, U.K. Business Secretary Kwasi Kwarteng is meeting industry bosses this morning.

The talks are aimed at stemming the potential chaos if more small suppliers go out of business. The focus is on helping the bigger companies take on the customers of failing suppliers, not bailing out small utilities, two people familiar with the matter said.

Among policy options, the government could shoulder some of the cost of taking on new households or lift the energy price cap so suppliers can charge more. It could also defer companies’ contributions toward renewables subsidies and security-of-supply measures. 

Another option, supported by the likes of Octopus Energy Ltd., is to remove green levies from consumers’ electricity bills and instead include them on gas bills. Octopus CEO Greg Jackson called for market reforms to “ensure that companies are properly run,” with energy hedged for the duration of a contract.

The U.K.’s energy supply market has mushroomed to more than 50 suppliers, but not all are hedged against rising wholesale prices. The market could go back to a monopoly of just a few big companies, according to Steven Redmayne, chief operating officer of small firm Green Supplier Ltd. 

Energy regulator Ofgem has already tightened rules on what’s required to set up an energy supplier; these will likely be looked at again.

U.K. Meat Producer Sees Risk of Shortages (10am U.K.)

The head of U.K. meat producer Cranswick Plc said there’s a “real risk of product shortages” if the government can’t avert the country’s impending carbon-dioxide shortage. 

The meat industry is already reeling from staffing shortfalls at slaughterhouses as a result of Brexit and the pandemic. Coupled with the looming lack of CO2 -- used by the plants to stun pigs and poultry -- that could “effectively bring production to a halt throughout the supply chain,” Chief Executive Officer Adam Couch said in a statement.

Ukraine Ammonia Producer to Halt Output (9:45am U.K.)

Ukrainian state-run ammonia producer Odeskyi Pryportovyi Plant will halt production from Sept. 22 amid soaring costs for natural gas and low prices for ammonia and urea, Deputy Chief Executive Officer Mykola Shchurikov said in a Facebook post. 

The government has repeatedly sought to sell the plant. The last time it was idle was the end of April 2018 to August 2019.

U.K. Government Seeks Hedging Data (9:40 a.m. U.K.)

The U.K. government is seeking data on energy companies’ hedging positions as it tries to figure out which suppliers are able to take on the customers of failed suppliers, according to two people familiar with the situation.

The more robust companies will be asked to take on extra customers, and talks are now focused on how much the government will pay and how big the hit will be to large energy companies.

The government is determined to maintain price caps, according to one person familiar with the situation.

Green Says It May Not Survive Winter (8:30 a.m. U.K.)

Green, a small energy supplier, said it may not survive the winter without government help.

“Without any support methods being put in place from the government, it’s unlikely that we will see the winter through,” Chief Executive Officer Peter McGirr told the BBC.

The company serves more than 250,000 households.

Bills Seen Jumping 400 Pounds (8:20 a.m. U.K.)

RBC estimates that bills could jump as much as 400 pounds ($547) a year because of surging prices.

“Electricity suppliers are now facing critical pressure against rising commodity prices,” RBC said in a note. “We see heightened risk for smaller, less well hedged energy suppliers to face bankruptcy in the event of this crisis, but we are mixed on if this presents a positive longer-term opportunity for larger energy suppliers in the U.K. such as Centrica.”

Centrica shares fell as much as 1.9%. 

Read more:

Energy Chaos Adds to Inflation Angst for Europe’s Policy Makers

Europe Faces Bleak Winter Energy Crisis Years in the Making

Power Crunch May Deter New Aluminum Supply Just as It’s Needed

Energy Crisis Brings Fresh Chaos for Battered U.K. Food Supplies

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