• Mon. May 16th, 2022

To alleviate the agony of high prices, energy companies propose a wholesale price structure in the United Kingdom

ByRoman Frąckiewicz

Jan 13, 2022

According to individuals familiar with the plans, energy companies have offered a mechanism based on a government subsidy program which supports renewable energy production as one possibility for protecting British suppliers and households from high wholesale power and gas costs. Energy suppliers will start talks with United Kingdom business secretary Kwasi Kwarteng on Wednesday, as the industry presses for steps to help consumers cope with rising living expenses this year, as well as to avert further large-scale failures in the gas and electricity retail sectors.

Energy executives say they’ve presented a number of recommendations to ministers as they seek to stress the significance of bolstering the industry. Since the beginning of August, over two dozen energy companies have gone bankrupt as a result of rising wholesale costs.

When Britain’s energy price cap is next modified by the regulator Ofgem in April, analysts predict that energy costs would climb by more than 50% to £2,000 per year for millions of homes. Millions more people could face fuel poverty as a result of this, contributing to a cost-of-living disaster.

The Resolution Foundation, a think tank, warned last week that the significant spike in energy prices, along with tax increases, will cost families £1,200 per year starting in April. Two days after Christmas, an emergency virtual meeting between energy chief executives and Kwarteng failed to produce a settlement.

According to those familiar with the discussions, energy corporations are proposing a mechanism akin to the “contracts for difference” subsidy scheme that encourages the expansion of renewable energy, and a £20 billion fund. Both would enable suppliers to pass on the expenses of recent wholesale energy price increases to consumers over several years without jeopardizing their financial health.

Ministers were going to agree with the energy sector on a wholesale price level which they considered consumers could endure under agreements for the difference-style process. Suppliers would get payments from the government if prices rose above that amount. Suppliers would refund money to the government if wholesale prices fell below the agreed-upon level, implying that the mechanism may be “self-funding,” according to several people familiar with the plans. However, MPs who oppose government intervention in free markets are unlikely to support the idea.

After United Kingdom wholesale gas prices hit a new high of over 450p per therm shortly before Christmas, energy suppliers expected another wave of price drops. Prices have now dropped somewhat as a result of abnormally warm weather across Europe, although they are still roughly three times higher than they were a year ago.

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