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UK announces $46 billion support plan for power firms

·2-min read
FILE PHOTO: Row of electricity pylons near Ellesmere Port

LONDON (Reuters) -Britain's finance ministry and the Bank of England will launch a 40 billion pound ($46 billion) scheme to ensure energy firms are not hit by a liquidity squeeze amid volatile markets, new Prime Minister Liz Truss said on Thursday.

"I'm announcing today that with the Bank of England, we will set up a new scheme worth up to 40 billion (pounds) to ensure that firms operating in the wholesale energy markets have the liquidity they need to manage price volatility," Truss said.

"This will stabilise the markets and decrease the likelihood that energy retailers need our support like they did last winter," she told parliament.

Energy suppliers across Europe have struggled in the face of record high wholesale power and gas prices following Russia's invasion of Ukraine and a cut in gas exports to Europe by Moscow.

Utilities often sell power in advance to secure a certain price but must maintain a "minimum margin" deposit in case of default before they supply the power. This cost has surged along with rocketing power prices, leaving companies struggling to find cash.

Norwegian energy company Equinor has estimated these collateral payments, known as margin calls, amounted to at least 1.5 trillion euros ($1.5 trillion) in Europe, excluding Britain.

Britain's offer of help follows several European countries which are also providing billions in support to energy distributors.

Finland has pledged to offer 10 billion euros ($10 billion) and Sweden 250 billion Swedish crowns ($23 billion) in liquidity guarantees to their power companies.

German utility Uniper has requested financial help from its government totalling around 19 billion pounds.

Britain's finance ministry said the support would be a last resort and only available to companies that could prove they were otherwise in sound financial health.

The Financial Times reported earlier this week that Britain's largest energy supplier, Centrica, was in talks with banks to secure billions of pounds in extra credit.

Centrica declined to comment.

($1 = 0.8675 pounds)

(Writing by William Schomberg and Susanna Twidale; Editing by Kate Holton and Mark Potter)