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The head of British gas-owner Centrica has warned that more of the UK’s retail energy suppliers could go bust this winter, with some that are “struggling for cash” likely to trade despite already being technically insolvent.
Chris O’Shea, the head of Britain’s biggest energy supplier, said some of the UK’s biggest energy providers were also at risk of folding following 30 supplier failures in the past 18 months, although government support for household bills was helping propel the market. .
“I think we will see supplier failure,” O’Shea told the Financial Times during a visit to the Easington gas terminal in Yorkshire.
Asked if he believed some suppliers were trading while technically insolvent, he replied “yes”, and warned that the “cash flow” created by government support schemes would leave “companies struggling for cash”. is one of the few things that keeps it afloat.
Britain’s energy retail market was plunged into chaos last year as soaring wholesale electricity and gas prices exposed the poor business models of many companies.
The demise of Bulb Energy alone, whose biggest supplier went bust, is predicted to cost taxpayers £6.5bn after it was placed into special administration in November last year and funded with a government loan.
O’Shea said the decision by Britain’s energy regulator last week not to force suppliers to ringfence customer cash was “deeply flawed” and acknowledged that “there are companies in our market that need to raise the capital they need to properly back up their business.” unable to do.”
He also predicted that the sector as a whole suffered losses as a result of the hot weather in October and November, saying that companies would have bought electricity and gas ahead of time to meet expected demand, but would have suffered when those levels of consumption did not materialise. . .
“For a company like Centrica, our shareholders bear that loss. For other companies including very large companies where they do not have enough capital. . . Every day this happens they become dangerous,” he said.
Ofgem last Friday set out a series of reforms for the energy retail market and said it would “closely” monitor a company’s use of customers’ money, but stopped short of forcing suppliers to ringfence those deposits. It was consulting on ringfencing proposals.
Households that pay their energy bills by direct debit typically get credit with their suppliers in the summer when consumption is low, but eat into the buffer in the winter when their consumption rises.
O’Shea also hit out at the government’s decision to increase windfall taxes on energy producers, saying it was damaging investor confidence in the UK.
The Easington terminal is where gas from Rough, Britain’s largest storage site recently reopened by Centrica, is brought ashore. Rough reopened in October and is currently operating at about a fifth of its full capacity.
O’Shea said Centrica was in talks with UK ministers on possible financing mechanisms to help it justify a £150mn investment to double gas storage capacity to 60bn cubic feet by next winter. But no agreement could be reached on the “correct regulatory framework”, he added.
“We won’t be able to expand capacity for next winter,” O’Shea said.
Centrica will receive a windfall tax on its gas production assets and clean electricity generators in the UK North Sea because it has a 20 percent stake in Britain’s nuclear power stations. The company has not yet disclosed how much tax it will have to pay under the levy.
“It has damaged the investability of the UK in the eyes of investors and that is obviously a concern because the only way you can get it back is through prolonged stability,” O’Shea said.
Additional reporting by David Sheppard in London
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