Kwasi Kwarteng is to hold crisis talks with energy companies on Wednesday amid pressure to prevent a further string of corporate collapses, after wholesale gas costs jumped 25pc as cold weather set in across Europe.
The Business Secretary is scrambling to head off fresh chaos in the market following the failure of 26 suppliers last year.
Consumer energy bills are expected to rise 56pc or more in April when months of soaring wholesale costs hit households, fuelling a growing cost of living crisis.
Wholesale gas prices had started to fall over the past two weeks as traders secured shipments of gas from the US, sparking hopes the worst might have passed. But they jumped 24pc to 214p on Tuesday, well above long-term averages of around 50p, as supplies from Russia to Europe via Ukraine fell.
The industry is pushing for measures ranging from removing the 5pc VAT charged on energy bills to setting up a £20bn loan fund so suppliers can spread wholesale costs over several years to lessen the impact on consumers.
Time is running short for the Government to put measures in place before February 7 when Ofgem, the regulator, will announce the level of the price cap on energy bills from April to October. It is expected to rise from £1,277 to £2,000 or more, with analysts expecting it to rise again in October.
Talks between Mr Kwarteng and major suppliers took place on Monday last week but no solution was reached. Greg Hands, the energy minister, also spoke with some smaller suppliers on Tuesday.
Wholesale gas costs have climbed more than six-fold this year amid a global supply squeeze as economies re-open from the pandemic. The price cap has prevented suppliers from passing these costs onto customers immediately, triggering a wave of bankruptcies.
Wholesale prices started to fall over the latest two weeks as traders secured shipments of gas from the US, but jumped 24pc to 214p on Tuesday - well above long-term averages of around 50p - as supplies of gas from Russia to Europe via Ukraine fell.
Russia has been accused of using the crisis to put pressure on Germany to approve its new Nord Stream 2 pipeline under the Baltic Sea, bypassing Ukraine.
Ofgem, the regulator, has already set out a plan for suppliers to raise third-party loans to pay for the burden of taking on customers from failed rivals - costs which are passed onto consumers.
Companies are also pushing for a broader private loan scheme which they can use for support.
The amount being claimed by suppliers for failures this year already runs to £1.8bn, while the Government has set aside nearly £1.7bn to run Bulb in special administration after it collapsed in November.
One source said: "There is an immediate issue of cash-flow here and if nothing happens bills will go up dramatically. Everyone is aware of that.
"A big hit all at once, or even over 12 months, is going to be unsustainable for a lot of people. There needs to be a financial mechanism to pay for this, which will ultimately be charged back to consumers.
"All of this could be provided by the energy companies, but that is a pretty big ask. The government won't want to provide it. So that leaves an investment opportunity to link those two together and create a pool of capital that will provide long-term loans indirectly to consumers."
City sources said pension funds may be able to invest in the loans if they are later securitised. Ofgem is running a consultation on the proposals for the costs of failed suppliers, closing on January 27.