Ofgem has effectively facilitated a £350m loan in a bid to help energy suppliers stay afloat as Covid-19 hits severely impacts revenue.
Keen to flatten the peak of suppliers going bust, the regulator will allow them to defer network payments, which make up about a quarter of domestic bills (but can be more for businesses). That means network operators – stable, regulated businesses – will carry the cost for suppliers up until March 2021.
Ofgem said it expects suppliers to first try and access commercial loans, but many may find banks unwilling to lend: Energy suppliers have been collapsing in numbers in recent years even before the current crisis.
Many have struggled to pay Renewable Obligation buyouts and Capacity Market payments. This year will likely see record shortfalls – and more suppliers going bust.
Suppliers and shippers shunned by banks will not have to offer networks security – but they will have to pay 8 per cent interest.
Per network licence area, the relief is capped at £1.6m per electricity supplier group and at £1m per gas shipper.
If suppliers go bust without paying networks back, and network operators cannot get the money back via liquidators, Ofgem will allow them to recover the costs next year through customer bills.
See details here.
The move comes as SSE has raised a code modification to defer £500m in extra balancing costs due to Covid-19’s impact on demand until next year.