Fri. Jan 21st, 2022

Energy companies have set up a mechanism based on the government subsidy scheme that supports renewable energy generation as one option to protect UK households and suppliers from high wholesale electricity and gas prices, according to people familiar with the proposals.

Talks between energy suppliers and British Business Secretary Kwasi Kwarteng will resume on Wednesday as the industry insists on measures to help consumers, as they face rising living costs this year, as well as further large-scale collapses in the electricity and gas retail sector to prevent.

Managers of the energy industry say a number of proposals have been submitted to ministers as they continue to emphasize the importance of supporting the industry. The sector has been hit by more than two dozen collapses of energy companies since the beginning of August under the weight of high wholesale prices.

Analysts warn that energy bills are likely to rise by more than 50 percent £ 2,000 a year for millions of households in April when Britain’s energy price limit is next adjusted by regulator Ofgem. It can dive millions more people in fuel poverty and contribute to a cost of living crisis.

The Resolution Foundation think tank warned last week that families are facing a hit £ 1,200 a year to their income from April due to the sharp rise in energy bills, as well as tax increases.

A virtual emergency summit between Kwarteng and energy chiefs two days after Christmas could not reach a solution.

Among the options offered by energy companies is a mechanism similar in design to the “contracts for difference” subsidy scheme that supports the growth of renewable energy, as well as a £ 20 billion fund, according to people familiar with the conversations. Both will enable suppliers to spread the cost of recent increases in wholesale energy prices to consumers over a number of years, but without jeopardizing their own balance sheets.

Under a difference-style mechanism contract, ministers will have to agree with the energy industry a wholesale price level that they believe consumers can tolerate.

If prices rose above that level, suppliers would receive payments from the government. When wholesale prices were below the agreed level, suppliers would return money to the government, which means that the mechanism could possibly be “self-financing”, several people with knowledge of the proposals said. However, the option is unlikely to be popular with MPs who oppose government intervention in free markets.

Energy suppliers feared another wave of crashes after UK wholesale gas prices hit a new record above 450p per term just before Christmas. Prices have since significantly dropped after a period of seasonal hot weather across Europe, but they remain about three times the level at which they traded a year ago.

Even well-managed suppliers have struggled, with the cost of purchasing energy for customers sometimes being as much as £ 1,000 above the price their households can charge via the price limit. The limit is currently set at £ 1,277 per year per household based on average usage.

Energy executives have stressed that several interventions are likely to be needed to prevent the wholesale price crisis from hitting households this year, including reducing value added tax on energy bills and additional support for vulnerable households.

The British Chamber of Commerce has said meetings between the government, industry and Ofgem will “continue in the coming days and weeks to ensure that British consumers are protected”.

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