Financial liquidity across power industry a real concern

It comes as fears have been reignited that some suppliers and generators might run out of cash, driven mainly by continued price volatility in wholesale power markets.  

In October, the treasury and Bank of England set up an emergency liquidity facility to tackle the margins faced by power generators and suppliers that hedge their sales or energy purchases in the futures market and followed a string of other European governments in offering liquidity support to the sector.  

Trade body Energy UK has told the Financial Times it remained “very concerned” about financial liquidity across the power industry “over the coming months”, warning the conditions attached to the government’s £40bn facility meant it was not available that may need it most.  

This scheme opened to applications in October and is on offer only to companies that are of “good credit quality” and which make a “material” contribution to UK electricity and gas markets. Suppliers also need to have more than 750,000 customers to qualify. 

Of concern for analysts are the smaller suppliers and generation companies, who they believe are at greater risk of running out of cash over the winter as cold weather has sparked further volatility in power prices. 

People familiar with the situation say Energy UK and individual suppliers have raised the matter in meetings with the government since the scheme was launched.  

In response, the treasury told the Financial Times it had a “duty to protect the taxpayer and as such, the energy markets finance scheme should only be used by energy firms if absolutely needed, and this has been reflected in the structure and pricing”.