UK government braces for worst-case scenario in energy crisis

Collapse of several companies leaves 1.5 million customers in Britain looking for new home power suppliers

The UK government is preparing for the worst-case scenario of gas costs remaining high, a business minister said, hours after two energy companies became the latest to collapse in the crisis.

Paul Scully told Sky News on Thursday that there was pressure on the energy price cap owing to the world's high wholesale cost of gas.

His comments came after Business Secretary Kwasi Kwarteng predicted a "very difficult winter" for many people in Britain because of surging fuel prices and the £20-a-week ($27) uplift in universal credit coming to an end.

“Clearly, as government, we need to make sure we are planning for the worst-case scenario because we want to make sure we can protect consumers,” Mr Scully said.

Pressed on what the worst-case scenario looked like, he said: “That it goes on for longer than a short spike. I can’t give you a figure now.”

On Wednesday, Avro Energy and Green were the latest casualties of the gas crisis, leaving a combined 830,000 customers without a supplier.

Founder and chief executive of Green, Pete McGirr, apologised to customers and employees hours after the company folded.

“I would just like to apologise to all our staff and our customers that this came to this and we had to close our doors yesterday,” he told BBC Radio 4’s Today programme.

“I don’t think we did anything wrong as a supplier, I don’t think any of the small suppliers out there have done anything wrong.

The gas crisis has resulted in a shortage of CO2 which is used in the slaughter of some animals including pigs. Getty

“As we continue on in this gas crisis, and it will continue through the winter no doubt as predicted, you’ll see larger suppliers feeling the pain as well.

“And at some point, they will come cap-in-hand and asking for a bailout and at that point, well, what have they done wrong?”

He insisted the firm had invested to soften the blow of any risks but said, “we just didn’t have enough hedges in place” to survive the crisis.

The loss of the two companies, added to the collapse of other businesses, leaves 1.5 million customers without a gas company.

As the winter approaches, they could be faced with no choice but to switch to a new, more expensive provider.

Ofgem said that it would ensure that new suppliers were appointed to Avro and Green customers.

The two companies supply 2.9 per cent of the UK’s domestic energy customers, Ofgem said.

However, many companies will be reluctant to take on hundreds of thousands of new customers, a costly and time-consuming process.

One source at an energy supplier said taking on any more customers would pile huge pressure on the company.

“Like three quarters of the market, we’ve already bought energy for our customers in advance,” the source said.

“We will now have to look at absorbing customers from these failed companies and buying more energy at eye-watering prices and that will be very tough.”

The announcement that Avro and Green had gone bust came after PFP, MoneyPlus, Utility Point and People’s Energy all exited the supply market in little more than two weeks.

Last month Hub Energy, which had only 6,000 customers, also stopped trading.

Taken together, all the recently failed companies account for more than 5 per cent of the market.

Speaking in the House of Commons on Thursday, the Business Secretary said the government will continue to resist pressure from firms to drop the energy price cap, which limits the rates a supplier can charge for their default tariffs.

Mr Kwarteng said the UK may see “more suppliers exit the market in the coming weeks” but argued it is “not unusual” for multiple firms to bow out each year.

Britain's Business Secretary Kwasi Kwarteng is resisting pressure from struggling energy firms to drop the price cap, insisting the UK government will protect customers. Photo: REUTERS / Hannah McKay / File Photo

Mr Kwarteng insisted the government “will not be bailing out failed energy companies” and said ministers want to see a “competitive energy market which can deliver choice and lower prices”.

He said “the energy cap, the energy price cap which continues to protect millions of customers will remain in place” and stressed that “consumers come first and this has always been the centrepiece of our approach”.

However, Shadow Business Secretary Ed Miliband accused Mr Kwarteng of “pretending” that it is normal for energy firms to go bust, adding: “What we are dealing with is far from normal”.

He pointed to the hundreds of thousands of customers who lost their supplier yesterday alone and said the government had failed to adequately prepare for the crisis.

Mr Miliband, a former leader of the Labour party, said the Conservative government’s inaction had “left the country dangerously exposed” and ministers were now “scrabbling around for solutions”.

Mr Miliband urged the government to step in to prevent the UK’s energy sector being dominated by a “greater concentration of the UK’s ‘Big Six’ suppliers”.

The Big Six is made up of EDF Energy, E.ON, npower, Scottish Power, SSE and British Gas, the UK’s largest energy provider.