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Energy companies bust: Government not ‘complacent’, Kwarteng insists amid claims Ofgem warned of crisis

·21-min read

The government has not been complacent over the energy crisis, Kwasi Kwarteng has insisted, after Labour’s Ed Miliband produced a letter he claimed was sent by regulator Ofgem to the business secretary 18 months ago warning of a “systemic risk” to the UK’s energy market.

A 250 per cent spike in wholesale gas prices has caused seven firms to collapse in a matter of weeks, with Avro Energy and Green becoming the latest to fold.

As figures from the regulator showed nearly 1.5 million households have now suffered their suppliers going bust, junior minister Paul Scully said it was “not going to be possible” to guarantee that their bills would not rise – contradicting assertions by Mr Kwarteng days earlier that customers being transferred to new providers should “be expected to pay the same amount”.

While all customers affected will continue to receive energy until Ofgem allocates them to a new – possibly more expensive – supplier, the regulator’s boss Jonathan Brearley warned MPs that the number of households affected “may well go well above” the hundreds of thousands.

Mr Scully also said it would be up to the energy watchdog to decide whether the price cap should rise. It is currently due to next be reviewed in April.

The business minister told Sky News the government was “planning for the worst-case scenario”, which he said was that gas prices would remain high beyond a short spike.

Both Mr Kwarteng and the regulator have insisted the cap should remain in place.

Read More

Ministers considering windfall tax on gas firms amid price spike

1.5 million households caught up in gas supply crisis as suppliers Avro Energy and Green cease trading

‘It may come at some cost’: Cabinet minister hints at deal over carbon dioxide shortage

Key Points

  • Government has not been ‘complacent’, Kwarteng insists

  • ‘Not possible’ to guarantee bills will not rise for customers of folded firms

  • Nearly 1.5 million households affected by collapsed firms

  • Ministers having ‘lots of conversations’ about possible price cap increase

16:10 , Andy Gregory

That’s us wrapping up the liveblog for today, thanks for following with us.

You can find all of The Independent’s latest business articles here.

Or else keep scrolling to read about the day’s events, as we reported them.

07:56 , Andy Gregory

Good morning, and welcome to The Independent’s live blog on the UK’s energy crisis, where we’ll be providing rolling updates on the latest news and statistics.

Nearly 1.5 million households hit by firms going bust

08:04 , Andy Gregory

Nearly 1.5 million UK households now face being switched to a new – and possibly more expensive – supplier, after their firms went bust.

Figures from Ofgem show that the collapse of Avro Energy and Greenwill on Wednesday affected a further 830,000 customers.

Nine firms have now collapsed, which according to the BBC accounted for five per cent of the UK’s energy market.

Avro Energy collapse prompts questions over ‘supplier of last resort’ system

08:16 , Andy Gregory

My colleague Ben Chapman reports:

With 580,000 customers, Avro Energy is by far the largest company to go out of business so far, prompting questions over whether the “supplier of last resort” system can cope.

Another medium-sized supplier, Igloo, is reportedly on the verge of collapse, with administrators said to be assessing the options for insolvency.

1.5 million households hit by gas supply crisis as more firms go bust

UK not heading back into ‘winter of discontent’, junior minister insists

08:22 , Andy Gregory

The UK is not heading back into a 1970s-style “winter of discontent”, a junior minister has insisted, referring to the period when the economy was brought to it knees by strikes and power cuts.

Asked by Times Radio if a winter of discontent with empty shelves, power cuts and rising living costs was looming, Paul Scully said: “No. Look this isn't a 1970s thing at all. I don't recognise that."

“We need to build resilience back into the economy in some of these areas,” the small business minister said, adding: “There is not need for people to go out and panic buy.”

Government having ‘lots of conversations’ about possible energy cap increase

08:29 , Andy Gregory

Ministers are discussing with Ofgem about whether or not a cap on gas and electricity prices for consumers may have to go up, a junior business minister has said.

“We've had lots of conversations ... with companies themselves, with Ofgem, in reviewing that price cap we clearly want to protect customers,” Paul Scully told Sky News.

Asked what the worst-case scenario was for a cap rise, Mr Scully – who described there being “pressure” on the cap – said: “This is all part of the conversations that Ofgem will set that cap at, because supply prices are based on a number of factors.

“Clearly, as government, we need to make sure we are planning for the worst-case scenario because we want to make sure we can protect consumers.”

Pressed on what the worst-case scenario looked like, he added: “That is goes on for longer than a short spike. I can't give you a figure now.”

The price cap, set by Ofgem, limits the cost of energy for about 11 million people on suppliers’ default tariffs. It is reviewed twice a year.

It is due to rise 12 per cent on 1 October to £1,277 for a household using an average amount of energy, and would in normal circumstances be reviewed again in April 2022.

Ministers considering windfall tax on gas firms amid price spike

08:35 , Andy Gregory

Ministers are considering introducing a windfall tax on firms that have benefitted from soaring wholesale gas prices in recent weeks as energy firms struggle, my colleague Conrad Duncan reports.

Kwasi Kwarteng did not rule out such a move when asked by the Business, Energy and Industrial Strategy Select Committee about the possibility of a levy on “the generators and traders who are making very significant profits”, which has been used in Spain, to fund protections for customers.

“We are looking at all options,” the business secretary told the committee. “What they are doing in Spain is recognising that it's an entire system – the energy system is an entire system. I am in discussion with Ofgem and other officials, looking at all options.”

However, the minister added that he was “not a fan” of windfall taxes in principle, despite the option being considered in order to protect the UK’s energy system.

Ministers considering windfall tax on gas firms amid price spike

UK must become less reliant on gas, supermarket boss says

08:47 , Andy Gregory

The UK needs to become less reliant on gas by using a “broader energy mix” in future to prevent shortages caused by high global gas costs, the boss of Iceland has said.

Speaking on Sky News, Richard Walker said: “In the short-term I'm more confident that supply chains will be more uninterrupted.

“Certainly in our own business we've been building up stocks of key lines that potentially could have been at risk, like frozen meat for example, and we're confident that we have fully stocked shelves.

“However I think we've now got to think longer-term. This loan is only three weeks: what happens after that, or what happens the next time the gas prices spike? So we need a broader, more diverse and therefore more sustainable energy mix so we're not so reliant on gas.

“We also need to look as a food industry, but also further up the supply chains, at different, better ways of capturing CO2 and potentially using alternative gases as well.”

Government strikes deal with US firm to restart CO2 production

09:11 , Andy Gregory

My colleague Celine Wadhera has this report on the government’s deal with US firm CF Industries to restart carbon dioxide production at its UK plants – after it halted production in response to the hike in gas prices.

The halt in operations has led to a food production crisis, as CO2, a byproduct of fertiliser production, is widely used in food processing – to stun animals for slaughter, package meats and salads, and to carbonate beer and other fizzy drinks.

In a move that Kwasi Kwarteng said would avert “disruption” in the “many critical industries that rely on a stable supply” of CO2, taxpayers will pay towards the operating costs of the manufacturer – which typically supplies around 60 per cent of the UK’s food-grade CO2 – to ensure supply for the food sector continues.

The agreement will be in place for three weeks while the “CO2 market adapts” to the surge in global gas prices, according to the Department for Business, Energy and Industrial Strategy.

Government strikes deal to restart CO2 production after gas prices surge

‘Not possible’ to guarantee energy bills will not rise for customers whose suppliers go bust

09:17 , Andy Gregory

A junior minister has rowed back on government assertions that bills will not rise for customers forced to switch energy providers due to companies going bust.

Just two days after the business secretary, Kwasi Kwarteng, said he thought those being transferred to new providers would “be expected to pay the same amount”, junior minister Paul Scully told Times Radio: “No, that's not going to be possible in terms of a guarantee.

“What we'll have though is security. They don't need to do anything because their transfer will be made directly through the Ofgem scheme, making sure that they have a company looking after them, supplying their energy.

“What I'd recommend they do though is take a meter reading, take a photo of their meter if possible, and then everything will be done automatically for them.

“But what we want to do is make sure first of all they have continuity of supply and then, as a government, that we are helping to keep those prices down through the price cap, through the warm homes discount as well for the lowest paid, and people on pension credit.”

09:49 , Andy Gregory

With Ofgem’s chief warning that many more people could be affected by collapsing firms, my colleague Conrad Duncan has this explainer on what to do if your energy supplier goes bust.

Government was warned of fragile energy market, trade association chief says

10:05 , Andy Gregory

The government has been warned repeatedly of how fragile the energy market is, the chief of trade association Energy UK has said.

Letters: Destructive populism is leading us down a dark path

10:27 , Andy Gregory

In a letter to The Independent, Robert Boston from Kent writes:

At the outset of the First World War, the foreign secretary, Sir Edward Grey, presciently said: “The lamps are going out all over Europe, we shall not see them lit again in our lifetime.”

More than 100 years later I am certain that if Sir Edward was alive now he would be making an equally erudite point, but with one major difference: "The lamps most assuredly will not be going out all over Europe, only here in the UK."

And given that I am older than he was then, I fear the second part of his wise words coming to pass, literally and metaphorically, unless our politicians cease this destructive populism.

Former BP gas chief urges rethink of gas procurement in UK

10:48 , Andy Gregory

The current surge in prices should spark a rethink of the UK’s approach to gas procurement, BP’s former gas chief has suggested.

“The level of gas prices in the UK right now are eye-wateringly high. I don’t recall seeing prices at this sort of level since the Fukushima crisis pulled a lot gas out away from Europe and into Asia,” said David Knipe, now a partner in Oliver Wyman’s energy and natural resources practice.

“The surge in prices should give us pause to consider the UK’s overall approach to gas procurement.”

“As a country we choose to effectively buy our gas largely at spot prices, which has benefited us over many years as spot gas prices have been relatively cheap,” Mr Knipe said. “However, when worldwide gas shortages occur, we are exposed to the resulting price spike.

“Japan takes an alternative approach, choosing to buy much of their gas on long-term oil linked contacts with price caps to limit the upside, but also compensating price floors to protect the producers. As a consequence, their consumers are seeing very little impact from the worldwide price spike. However, the quid pro quo of this is that they did not benefit from the periods of cheap gas.”

11:02 , Andy Gregory

My colleague Adam Forrest has more details from junior minister Paul Scully’s media round this morning, notably his comments about government officials having “lots of conversations” about a possible energy cap increase with Ofgem and energy companies.

The energy price cap imposes limits on costs for 11 million people on default tariffs – but struggling energy firms want it scrapped so they can pass on higher gas prices to customers.

Government in talks over rise in energy price cap, says minister

Ed Miliband produces Ofgem letter ‘warning Kwarteng of systemic risk to energy supply sector'

11:17 , Andy Gregory

Ed Miliband has brandished a letter he claims Ofgem wrote to then energy minister Kwasi Kwarteng last year “warning about systemic risk to the energy supply sector as a whole”, which could place “significant burden and costs” on the public purse.

Labour’s shadow secretary for energy accused the government of leaving the UK “dangerously exposed”.

Government has not been ‘complancent’, minister insists

11:21 , Andy Gregory

Responding in the Commons to Ed Miliband, who produced a letter sent last year by Ofgem which warned of a “systemic risk” to the UK’s energy market, Kwasi Kwarteng insisted the government had “not been complacent”.

The business secretary said: “The whole point about the supplier of last resort process which was interrogated last year is that it is an organised process, well established, which can allow existing strong companies to absorb customers in failure.

“I remember the [Ofgem] letter last year. We interrogated all through the Covid process the systems that we had in place and during that period the supplier of last resort was found to work. So far this year it has been found to work.”

He added that the “special administration regime” the government had prepared for energy crises was in place if needed.

11:25 , Andy Gregory

Here’s footage of small business minister Paul Scully defending the government’s decision not to bail out energy companies.

Kwarteng claims criticism of UK’s limited gas storage is a ‘complete red herring’

11:39 , Andy Gregory

Kwasi Kwarteng has dismissed the claims the UK’s limited gas storage capacity is causing prices to soar, arguing it is actually a “strength” rather than a weakness.

Labour’s Matt Western told MPs: “Why is it that the storage capacity of the UK is just 2 per cent annual demand versus 25 per cent in Europe as an average. Is that part of the reason we don't have energy price resilience?"

Mr Kwarteng replied: “Only yesterday, there was a conference of EU energy ministers to discuss this very problem.

“It is not a function of storage to be able to mitigate a quadrupling of the gas price. This is a complete red herring. And one of the reasons why we have less storage is because we have a greater diversity of energy supply. That is a strength, not a weakness.”

‘We’ve got the perfect storm,’ Sadiq Khan warns

11:59 , Andy Gregory

London’s mayor has lent his voice to warnings of a “perfect storm” for residents facing cuts to universal credit and rising energy bills.

Sadiq Khan alleged that the crisis “is a consequence of government’s shambolic policy over the years”, adding: “We should be diversifying our fuel supply” to include more renewable energy.

Soaring energy prices ‘could be tipping point’ towards renewables

12:15 , Andy Gregory

“The current energy bull market is an unintentional, yet perfect storm for the UK's green energy transition,” said Chris Bowden, managing director of Squeaky, which is a marketplace for clean energy.

He added: “If we look beyond the current carnage, this could a tipping point for the market. In short, paying more for gas and power could spur on the deployment of renewable energy. If history has taught us anything it is that for change to occur, the boat needs to be rocked. Riding this wave of chaos could prove to be very beneficial in the movement towards clean power.”

"Let’s be frank; it is easy to get sucked into the excuse that wholesale cost is the primary cause of this crisis. Yes, wholesale cost has tipped the energy industry into chaos, but the primary cause of this comes down to the monumental amount of trailing losses in the industry based on unsustainable business models.”

Which energy firms have gone out of business and which are under threat?

12:29 , Andy Gregory

My colleague Tim Wyatt has this guide to the business casualties of the spike in wholesale gas prices, and what to expect in the coming weeks.

Which energy companies have gone bust?

MP attacks Commons recess as UK ‘faces autumn of discontent'

12:41 , Andy Gregory

Citing an “autumn of discontent”, SNP Commons leader Pete Wishart attacked the “nonsense of a conference recess”, telling MPs: “We will be taking a month off when the UK is facing an autumn of discontent, when hard-pressed families are facing one of the biggest assaults on their weekly incomes.

“As this House abandons its station to the conference halls and seaside resorts, there's Universal Credit cuts, energy prices going through the roof, a CO2 crisis, driver shortages, farming chaos, fishing chaos, an export crisis, the ending of furlough and Brexit killing a nation.

“This nonsense of a conference recess has surely run its course and it must now come to an end.”

Spike in gas prices set to push UK inflation above 4%, Bank of England warns

13:03 , Andy Gregory

The Bank of England has warned of a bigger-than-expected rise in inflation due to rocketing energy costs and said the supply chain crisis was beginning to hamper Britain’s economic recovery.

The Bank cautioned that rising gas prices were set to push UK inflation above 4 per cent by the end of the year, but stuck by forecasts that the inflation leap would be only temporary as all nine members of the Monetary Policy Committee voted to keep rates on hold at 0.1 per cent.

Minutes of the latest decision revealed the bank has revised down its growth forecast for the third quarter by around 1 per cent since its August report, leaving the level of gross domestic product around 2.5% below its pre-Covid level.

Founder of bust company questions government bailout of US firm as energy suppliers allowed to fold

13:22 , Andy Gregory

The founder of Green, which went bust yesterday, has questioned why the government has bailed out a US firm producing CO2, but not the seven energy companies which have sunk in recent weeks.

Taking aim at comments by business secretary Kwasi Kwarteng that the government will not be bailing out “badly run” companies, Peter McGirr said the folded firms had done nothing wrong, and had sufficiently hedged – investing to offset the risk of any price fluctuations.

Mr McGirr told the BBC’s Today programme: “If we’re all bad businesses because we’re not 110 per cent hedged, does that not make the fertiliser business a bad business? If they need within their supply chain gas to produce fertiliser and CO2, why do they get a bailout and we don’t?

“And that’s only for three weeks, so in three weeks’ time, when the market’s still in the same place, are the government going to keep writing blank checks for this to keep food on the table?”

He added: “As we continue on in this gas crisis – and it will continue through the winter, no doubt – you will see larger suppliers feeling the pain as well, and at some point, they will come cap in hand asking for a bailout.”

CO2 producer prepares to reopen

13:46 , Jane Dalton

A second major carbon dioxide producer could be back online within days to ease the UK’s national shortage, a director has said.

Teesside-based Ensus can supply around 40 per cent of the UK’s demand for CO2 but the biofuels plant has been on an annual shutdown for routine maintenance.

The plant, at Wilton International, produces CO2 as a by-product of turning wheat into bioethanol - which can be used as a fuel or additive to petrol - and it should be back online next week.

Ensus director Grant Pearson said the shutdown had been planned six months ago, and the switch-on next week is still on schedule.

He said: “We make around 40 per cent of the UK’s demand so we don’t fix the whole problem - but we are part of the solution.”

Carbon dioxide is used in the food chain, to kill chicken and pigs, in health services and in the nuclear industry.

Government was warned energy firms could collapse 18 months ago, Ofgem letter reveals

14:03 , Jane Dalton

The government was warned 18 months ago that some of the UK’s struggling energy companies faced possible collapse, a newly-released letter has revealed.

Regulator Ofgem wrote to business secretary Kwasi Kwarteng last March to warn him of the “systemic risk” faced by energy suppliers, urging the government to consider action to help stabilise the market. Adam Forrest reports:

Government was warned energy firms could collapse 18 months ago, letter reveals

BP to cut petrol deliveries

14:15 , Jane Dalton

BP is to reduce deliveries of petrol and diesel to forecourts across the UK to ensure supplies do not run out, because of the HGV driver shortage.

The oil giant told the government in a meeting last Thursday that the company’s ability to transport fuel from refineries to forecourts was faltering.

Motorways will be prioritised and restocked as normal, according to reports.

BP does not employ HGV drivers directly, but outsources to independent haulier Hoyer. Joe Middleton reports:

BP petrol stations closed as lorry driver shortage hits UK

North will be hit hardest by soaring energy prices, business secretary accepts

14:52 , Andy Gregory

Kwasi Kwarteng has acknowledged that people living in the North will be hit hardest by soaring energy prices this winter.

Speaking in the Commons, Rachael Maskell said: “The rise in energy prices will disproportionately impact people living in the North because it is colder during the winter in the North. So what assessment has he made of the regional disparities and how is he going to mitigate against that?”

The business secretary replied that the Labour MP had raised “a very fair point and clearly in terms of the gas price the single most important determinant of it is the weather, and she's absolutely right, adding: “That's why we've got schemes like the Warm Home Discount and that's why we're absolutely focused on protecting the most vulnerable customers, wherever they are in the UK.”

15:04 , Andy Gregory

What factors have led to the UK’s energy crisis? My colleague Ben Chapman reports:

Energy suppliers have been hit by a 250 per cent jump in the cost of gas this year. Sharply rising demand as the world has emerged from the pandemic has combined with a host of factors restricting supply.

An unusually cold winter left stocks low and a lack of wind has meant the UK relied more on gas than in previous years. Russia has provided less gas to Europe in a move that many believe is designed to exert its power over EU countries blocking the opening of the long-awaited Nord Stream 2 pipeline.

The UK is more heavily reliant than its European neighbours on gas but ministers have allowed storage facilities to be closed down in recent years.

Suppliers are not able to pass all of the rising costs on because many customers are on fixed-rate deals which have yet to expire and the government caps the maximum level that consumers can be charged for energy.

Food suppliers warn of empty supermarket shelves and panic buying without urgent action

15:26 , Andy Gregory

In related news amid what one MP called the UK’s “autumn of discontent”, farming and food industry bodies have warned of panic buying and empty supermarket shelves through the winter.

In an open letter to Boris Johnson, organised by the National Farmers’ Union (NFU), 12 food and drink trade groups said the food and farming sector is on a “knife edge” due to a “crippling” shortage of workers across the entire supply chain.

Companies must be given permission to recruit more workers from overseas to ease shortages and ensure enough food can be picked, processed and brought to shops, the organisations said. My colleague Tim Wyatt reports:

Food suppliers warn of panic buying and empty shelves over winter

Five things you need to know about coping with the energy crisis, according to Martin Lewis

15:41 , Andy Gregory

Financial expert and founder of MoneySavingExpert.com, Martin Lewis, has issued some advice to help households deal with soaring energy prices.

“I warned you the energy market was dire. Now, sadly, it’s got far worse,” Mr Lewis told his readers. Read more on his tips here:

Five things you need to know about the energy crisis, according to Martin Lewis

How much more will consumers pay if their energy provider goes bust?

15:59 , Andy Gregory

The default tariff cap set by Ofgem rises to £1,277 per year from next month, my colleague Holly Bancroft reports.

As a result, many of the nearly 1.5 million customers whose suppliers have gone bust will be transferred to companies who will charge up to this rate.

This will mean a significant price hike for people who had found cheap deals with smaller suppliers. Customers who took out one-year-fixed-price deals with Avro in March will have signed up to pay £920 a year, for example.

Millions of households could see their bills increase by more than £350 when they are bumped up to the capped rate of £1,277. Find out more details here:

How much more will consumers pay if their energy provider goes bust?

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