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Britain may give state loans to energy companies as gas prices surge

·3 min read
FILE PHOTO: Newly appointed Britain's Minister of State at the Department for Business, Energy and Industrial Strategy, Kwasi Kwarteng, is seen outside Downing Street in London

By Guy Faulconbridge and Kate Holton

LONDON (Reuters) -Britain is considering offering state loans to energy companies that take on customers from firms which go bust due to soaring wholesale natural gas prices, Business Secretary Kwasi Kwarteng said on Tuesday.

As economies reopen after COVID-19 lockdowns, wholesale natural gas prices in Europe have soared this year, pushed up by high demand for liquefied natural gas in Asia, nuclear maintenance and lower-than-usual supplies from Russia.

The record prices have strained the British energy sector, destroying the business model of smaller energy traders and sending shockwaves through the chemical and fertiliser markets, leading to a shortage of carbon dioxide.

Britain's biggest energy companies have asked the government for support to help cover the cost of taking on customers from firms that have gone bust.

Asked by Sky News if state-backed loans were an option, Kwarteng said: "There are lots of options."

"It costs a company to absorb up to hundreds of thousands of customers from another company that's failed, that costs money, and there may well be a provision for some sort of loan and that's been discussed," he added.

Kwarteng said that in an average year about 5-8 smaller energy companies exited the market in Britain, but that this year the number could be bigger.

"We have to have a much more robust supply of last-resort capability," Kwarteng said, adding that customers should be able to get supply at a tariff similar to the one offered by a company that goes bust.

One source at a large energy firm involved in the talks said if a company with many hundreds of thousands of customers went bust it would be extremely difficult for another supplier to take them on.

"We could be looking at a loss of nearly 500 pounds per customer. How could we take that on if the only government support is a loan that we would need to pay back," he said speaking on condition of anonymity because of the sensitivity of the issue.

WINTER HEATING BILLS

European consumers are facing the prospect of soaring winter heating bills due to a confluence of global factors that have raised questions about how vulnerable Europe remains to swings in global energy prices.

Benchmark European gas prices have risen by more than 250% since January, with contributory factors also including low storage stocks, high EU carbon prices and low renewable energy output.

Britain privatised British Gas in 1986 and, after a series of deregulating steps since then, the consumer market has seen a plethora of different companies - some essentially just traders - offering gas and electricity to households.

"I don't think we should be throwing taxpayers' money at companies which have been, let's face it, badly run," Kwarteng said. "A number of these companies have been badly run."

"I don't want there to be a reward for failure."

Kwarteng said he also hoped to have some resolution to a shortage of carbon dioxide, which is used to put the fizz in beer and soft drinks, and also used to stun pigs and poultry in abattoirs as well as to preserve the shelf-life of meat.

"Its pretty imminent but I'm confident, this week I hope we have a very clear plan to get CO2 production going again," he said, adding that he had spoken to finance minister Rishi Sunak about the situation.

A U.S. company that provides 60% of Britain's carbon dioxide, CF Industries, has halted its operations at two UK plants that produce CO2 as a byproduct of its main business, fertiliser. Kwarteng met Tony Will, the head of CF, on Sunday.

Britain said it could also look at providing some kind of economic support for the company, Kwarteng said.

Asked by Times Radio if any solution would involve the government giving financial support to get the system working again, Kwarteng replied: "It may do but there are other options on the table. We need to look at other sources of CO2 supply."

(Reporting by Guy Faulconbridge and Kate Holton; additional reporting by Susanna Twidale, editing by Michael Holden and Pravin Char)

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