A huge cash pile – up to £10 BILLION per month – will be tossed onto the country’s inflationary flames – cash which could still be spent (if HMG could be persuaded to act in time) on more effective measures, like building thousands of renewable-energy “microgrids”, which would tackle the energy shortage this winter, and every succeeding winter.
As the Chancellor was making his statement in Parliament, the sterling exchange rate collapsed. Currency markets are acutely aware that the government’s energy price guarantee is rather like King Canute ordering the tide to recede. The Utility companies that provide gas and electricity are concerned the problem is being addressed in the wrong way, even though it was their suggestion in the first place.
The Times reported last week that the power firms themselves don’t want to be herded into signing cut-price power supply contracts this winter.
Senior executives at several power generation groups, speaking on condition of anonymity, told The Times that while they did not want a windfall tax, they now believed it may be the best option for this winter, since it would only target actual profits.
One said they would back a windfall tax if it was “implemented in a fair way and doesn’t stifle investment — so you get allowances if you’re going to continue to invest”.
The idea of a one-off levy is gaining popularity amid fears that other proposals for tackling excess profits may be too complex to implement at short notice, and could be even more damaging, according to industry executives. Ministers are understood to have held talks with companies including Orsted, RWE, SSE, ScottishPower, Drax, Vattenfall, EDF and Octopus.
Electricity producers in Europe have warned that they face a “Lehman Brothers moment” where the market for trading energy could collapse if liquidity evaporates. European power companies face margin calls in excess of $1.5 trillion owing to the wild price swings in the market, according to the Norwegian energy giant Equinor. Governments in Finland and Sweden have this week been forced to pump billions in emergency liquidity to prop up the sector. Germany has offered $7 billion in emergency loans to help the sector.
Cash-strapped British power companies are struggling to hedge against surging market gas prices, the governor of the Bank of England has warned, raising the prospect of emergency credit help for electricity suppliers.
HE said policymakers were working on ways to ensure that the energy trading market continued to function. Centrica, which owns British gas, was reported this week to have asked banks for billions in emergency credit to meet its margin calls.
A report by the TUC issued at the start of Labour Party annual conference in Liverpool, calls for a new British state energy generation company – along the lines of EDF in France or EnBW in Germany – would see the government receive between £63bn and £122bn in revenues over the next 24 months, rather than spending £100bn.
