Energy crisis: emergency talks set to continue after deal collapses

Emergency talks to resolve Britain’s growing energy crisis are expected to continue as government and suppliers grapple with how to deal with soaring gas prices.

A meeting on Monday morning failed to come up with a solution to what an industry leader described as a “huge crisis” as industry torn apart by bankruptcies – around two dozen energy suppliers driven from the market since August – warned of a “huge crisis” in 2022.

Yet despite disastrous statements from industry executives, no deal was reached on Monday. Failure to find a way forward will put pressure on the government over fears that another major supplier may fall as winter weather conditions and limited supplies in the UK and Europe could push gas prices even further. high.

A government spokesperson said the meeting between the major energy providers and Ofgem had concluded with an agreement to continue talks to ensure that “UK consumers are protected” amid rising costs of gasoline. gas.

Suppliers say that even with well-hedged portfolios, aimed at hedging against price hikes, they are still partially exposed to the sharp rise in wholesale gas prices.

This financial pressure, with suppliers also unable to simply pass costs on to consumers due to the price cap, means that some of the UK’s biggest players could struggle in the coming months. There is also less ability to absorb consumers if other providers fail, because the ones that remain are so large.

The possibility of adding new customers from failing supplier companies that are still in business has also been “maximum” in the words of an industry insider, as existing suppliers have already added a large number of consumers. to their books in recent weeks at a high cost.

This lack of capacity has already forced the government to effectively nationalize Bulb Energy, a move that risks costing taxpayers billions.

Monday’s talks were extremely sensitive, according to a person familiar with the talks, as, for the first time, the government “was slowly showing signs of acceptance” that “more meaningful intervention in the market” would be required in the coming weeks.

This could mean going beyond simply reducing green levies and 5% VAT to zero on invoices and even allowing for a larger-than-expected price cap increase than is currently expected in April, said the same person familiar with the talks.

However, The Independent understands that the government is reluctant to put too much pressure on household budgets by allowing bills to rise more sharply in April. Analysts are already expecting the price cap to rise by around 50% to around £ 2,000 a year for the average household this spring.

Forecasts of a sharp increase in energy bills come as wages fail to keep pace with inflation, leading to real reductions in household incomes.

The industry is also pushing to remove VAT from bills, a move suggested by Labor, but on its own, such a move would not be enough to mitigate the impact of high gas prices, it has been said. at the Independent.

Instead, there should be a mid-term solution that allows for a transition away from fossil fuels, but that is realistic about the need for companies to be able to share costs with consumers, a senior industry official said. .

Suppliers argue that they need to be able to pass on more costs associated with rising gas prices to consumers than current price cap plans allow in April.

But there are competing interests within the industry, which underscore the need for the government to ensure that any support avoids undermining efforts to move away from fossil fuels, the Independent was told. .

Ovo chief executive Stephen Fitzpatrick said ahead of the meeting with business secretary Kwasi Kwarteng that rising wholesale gas prices would be “a huge crisis for 2022”.

“We have seen this energy crisis unfold now for the past three months, and we have seen energy prices rise, fall and rise again,” he told the BBC. “We have had more than 30 bankruptcies in the sector, we have had millions of customers forced to change supplier.

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Jamie Collins

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