Government holds urgent talks with energy firms over gas price rises

Business secretary in up to 20 meetings over weekend to ‘bottom out how bad things might be’, says senior industry insider

First published on Sat 18 Sep 2021 06.05 EDT

The government has said energy security is “an absolute priority” as the business secretary, Kwasi Kwarteng, began talks this weekend with energy industry representatives over concerns about a rise in wholesale gas prices.

Kwarteng is meeting chief executives from energy suppliers and operators to discuss the extent of the impact of surging prices, which have been blamed on high global demand, maintenance issues and lower solar and wind energy output.

He insisted there was enough gas supply to meet demand. He tweeted: “Britain has a diverse range of gas supply sources, with sufficient capacity to more than meet demand. We do not expect supply emergencies this winter.”

A senior industry insider said the business secretary aimed to hold up to 20 one-on-one meetings with energy industry leaders this weekend as an “intelligence-gathering exercise” to “bottom out how bad things might be”.

The crisis talks are taking place ahead of a planned industry roundtable meeting next week to thrash out how the government and industry can work together to manage the economic fallout of the record gas market prices, from household bills to heavy industry and the food sector.

The government is understood to be open to considering short-term measures to help companies and households weather the looming winter energy crisis, but could also consider a longer-term shake-up to accelerate the UK’s shift away from fossil fuels and address the “fragility in the energy retail market”.

“There’s nothing about this situation that wouldn’t be better if we were less reliant on gas,” the source said.

Gas prices have surged globally after a long winter in which gas stores across Europe and Asia were heavily depleted. Storage levels remain well below average, and gas imports into Europe from Norway, Russia and the Middle East have slowed.

In the UK, the rise in gas prices has also led to record electricity market prices because the UK relies on gas-fired power plants to generate almost half its electricity. Low wind speeds have reduced the UK’s renewable energy generation, and a string of outages at UK power plants and a major cable connecting the UK to France have forced up market prices.

Five energy suppliers have gone bust in the past five weeks as energy market prices have soared, leaving more than half a million homes in need of rescue measures from the industry regulator.

The rocketing price of gas has also caused a Europe-wide slowdown for some chemical factories that produce fertiliser, a byproduct of which is carbon dioxide, used in fizzy drinks and beer as well as in the meat industry to stun animals before slaughter.

The weekend’s energy crisis meetings are expected to seek views from the chief executives of the UK’s biggest energy companies, including Centrica, National Grid, Energy UK, Octopus, Ovo, SSE, EDF, Scottish Power, Shell Energy, E.ON, Bulb and SGN, and the energy regulator, Ofgem.

The companies are understood to hold wide-ranging views on the extent of the UK’s energy challenge, and how it should be addressed, shaped by their business models.

Kwarteng said he would meet Ofgem again on Sunday before organising a roundtable with industry leaders on Monday.

He said he will “remain in constant contact” with colleagues across government to “manage the wider implications of the global gas price increase”.

In Spain, the government has introduced a windfall tax on energy generators and gas suppliers – which are earning record-high revenues – that will be used to create a €3bn (£2.6bn) fund to help reduce home energy bills.

This is an idea that might be welcomed by energy suppliers in the UK, but would probably be strongly opposed by companies that have supplier and generating divisions.

Dermot Nolan, a former head of Ofgem, warned on Saturday that Britain was likely to face high energy prices for the rest of the year.

He told the BBC Radio 4 Today programme: “It is not obvious to me what can be done in the very short run. Britain does have secure, relatively diverse sources of gas, so I think the lights will stay on.

“But I am afraid it is likely in my view that high gas and high electricity prices will be sustained for the next three to four months. It is very difficult to see what the government can do directly in this regard.”

Two large fertiliser plants that produce CO₂ as a byproduct in Teesside and Cheshire have shut as a result of the sudden rise in wholesale gas prices.

The chief executive of the British Meat Processors Association, Nick Allen, said CO₂ was essential for the humane slaughter of livestock and extending the shelf life of products.

He told the Today programme: “If we haven’t got the CO₂ supplies, on the packaging side that reduces the shelf life of products going on the shelves at a time when we are really struggling because of all the transport problems.

“We really need the government to step in now and actually do something.”

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