Energy suppliers are asking the government to launch a variant on contracts for difference (CfDs) as a way of spreading the rocketing costs of wholesale gas.
Emergency discussions ended inconclusively before Christmas between D-BEIS and EnergyUK, representing retailers who’ve survived mass bankruptcies which drove 26 suppliers out of business in 2021.
Officials rejected the suppliers’ demand for a £20 billion government-backed fund for long-term loans to lighten the burden on balance sheets. But as talks resume tomorrow, the energy companies hope to hear of a counter-bid from the Treasury.
The FT reported this week that CfDs, the decade-long green fuel support scheme, is seen by energy retailers as an adaptable model. It offers the possibility of spreading the impact of soaring generation costs over several years, allowing suppliers to protect and repair balance sheets.
An added benefit of a second, re-directed CfD scheme would be that it would be self-funding, avoiding the need for extra taxes or public borrowing
Setting a strike price for wholesale gas yielding sales at a retail price which customers could bear, will be the critical challenge faced by ministers and the suppliers.
That strike price would be central to the operation of a second CfD scheme. If gas trades on wholesale markets exceeded that agreed benchmark, the government would compensate energy firms. On the other hand, if market prices dropped below the strike price, suppliers would pay the government back.
With the £1,277 price cap scheduled for Ofgem’s next revision in April, disquiet is spreading among government back-benchers amid fears that rising energy prices will spearhead a growing crisis in the cost of living, already driven price inflation, and rising national insurance charges due in the new tax year.
The Telegraph reported yesterday that up to twenty MPs and peers are telling premier Johnson that he must intervene, as power bills are mooted to double to around £2,000 as early as the spring.
In Conservatives’ cross hairs are environmental levies claimed to make up as much of 20% of household energy bills.
Craig Mackinlay, leader of the Net Zero Scrutiny group of MPs opposed to green subsidies, said “I didn’t become a Conservative to make my constituents colder and poorer. It’s clear, looking at these survey figures, that the British public are not signed up to the Government’s plans.
The MP was referring to a poll commissioned by Net Zero Watch, the Tufton Street-based organisation linked to climate science denier Lord Nigel Lawson. The poll claims 60% of around 2,100 respondents saw no benefit from the green levies. A similar proportion said they’d been given no say in their formation.