According to the chief executive officer of Centrica, government assistance for energy could be at risk if energy companies fail.
The chief executive officer of Centrica, which owns British Gas, has warned that more energy suppliers could fail this winter, taking with them government subsidies meant for customers.
Chris O’Shea told that the energy market in the United Kingdom, which is governed by Ofgem, provides “rich individuals” behind some retail suppliers with a “free bet” to speculate, with other billpayers bearing the cost of failure.
In the last 18 months, more than 30 retail providers have failed as a result of skyrocketing gas costs, and he claimed that some of the remaining suppliers could technically be operating while insolvent this winter.
Additionally, he cautioned that government energy support, paid in advance to providers, could be vulnerable in the case of a failure, thereby increasing the proportion of the failure’s cost borne by billpayers.
The energy retail business has been unprofitable for several years, and as a result, several energy suppliers are in a dangerous financial position, which worsens daily,” he explained.
“Every day they incur additional losses, their position deteriorates and the likelihood of failure rises. And I am concerned that there will be other failures.
“We’ve learned a great deal from some of the new entries to the industry, and some of them have brought in some solid procedures. However, the majority of them are owned by wealthy individuals with a free bet.
If all goes well, they will earn even more money than they do already. And if something goes wrong, our customers must pay – that cannot be right.”
The government has intervened to assist businesses and people by setting a maximum price for gas and electricity units and reimbursing suppliers for the difference between that and the actual cost of energy.
Customer deposits at risk
Mr. O’Shea stated that the choice to pay suppliers in advance put consumer deposits and money at risk in the event of bankruptcy.
“Because the government delivers [the funds] in advance, the risk is elevated. If the provider fails after taking government funds before distributing them to consumers, then the cost of failure will grow.
Mr. O’Shea spoke at the Easington Gas Terminal on Humberside as Centrica began drawing gas from the Rough offshore storage facility for the first time since it reopened in October to increase the energy resilience of the United Kingdom.
In recent days, the present cloudy weather has reduced solar and wind power generation, raising the price and demand for gas and causing the National Grid to request an increase in supplies.
Mr. O’Shea stated, “Rough is operating exactly as it should, bringing gas from the offshore storage facility into the system, allowing us to ensure that gas-fired power plants are supplying gas to people’s homes while keeping costs low for consumers.
If that wasn’t present today, we would have to look for alternate gas sources or ways to reduce electricity consumption. The fundamental economics of supply and demand would have led to a price increase, though. If demand increases but supply does not, prices will rise. In addition to keeping prices low, it also eliminates the need to look elsewhere.”
Currently, only 20% of Rough’s capacity is being utilized, necessitating a £1bn investment for expansion. Centrica believes a deal with the government is essential to secure a return, and the business would prefer to convert the storage field to hold hydrogen, double the expenditure required.
Concerns of a fiscal windfall
Mr. O’Shea stated that Centrica is dedicated to the United Kingdom, but cautioned that the recent increase in the windfall tax threatens oil and gas developments and may discourage foreign investment.
“A windfall tax does not genuinely encourage investment in the United Kingdom. Therefore, I am concerned about the potential long-term effects on investment.
Companies with marginal initiatives that barely made economic sense before a windfall tax are unlikely to benefit from a windfall tax, and several projects may be canceled as a result.
