Small UK energy suppliers are unlikely to survive the coming winter without government intervention because of rising gas and power wholesale costs, CEO of Green.Energy, Peter McGirr said Sept. 20 in an interview on BBC radio.
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UK Business and Energy Secretary Kwasi Kwarteng is holding crisis talks Sept. 20 with energy companies to ensure security and diversity of energy supply, government officials said. This could include state-backed loans to keep struggling suppliers afloat.
"Without support mechanisms from the government it is unlikely we'll see the winter through," McGirr said.
Green.Energy was effectively hedged with regard to the 60% of its 250,000 customers on fixed tariffs, but was "curtailed by the regulator Ofgem" from increasing its variable tariffs for the remainder of its customer base due to the UK's regulated price cap, McGirr said.
"We just don't have deep enough pockets to ride out this storm," he said.
Short-term solutions could include an increase in the price cap and state handouts, he said, adding that this was overdue anyway because of payment holidays offered to customers in December 2020 due to the pandemic.
Over three million customers are on the regulated default energy tariff, which was increased by 12% for the coming winter.
This hike was based on an average wholesale price for gas rising from GBP14.47/MWh ($19.78/MWh) for the current summer tariff period to GBP21.39/MWh for the coming winter tariff.
For power, the increase was from GBP50.54/MWh to GBP69.75/MWh.
S&P Global Platts assessed UK spot gas at GBP56.00/MWh Sept. 17. UK spot power is averaging GBP266.00/MWh September to date.
Rising costs have already claimed a number of small suppliers, with their customers taken on by a "supplier of last resort" under regulator Ofgem's safety net mechanism.
Centrica has recently taken on supplying 100,000 customers from failed suppliers PfP and MoneyPlus, while EDF Energy is to supply Utility Point's 220,000 customers.
Under normal conditions this consolidation is welcomed by the larger suppliers, but at present they are reluctant to take on loss-making customers on the default tariff and hence today's talks on state loans, or even a state receiver for failures.
Kwasi Kwarteng said Sept. 18 that "our exposure to volatile global gas prices underscores the importance of our plan to build a strong, home-grown renewable energy sector to further reduce our reliance on fossil fuels."
Platts Analytics was bullish on European gas prices going into the winter season starting Oct. 1, analyst James Huckstepp said.
"We see these record high prices as justified and necessary to incentivize balancing this winter," he said.