Bank of England to lend UK energy companies as much as £40bn
The Bank of England will lend UK energy companies as much as £40bn to deal with soaring market prices amid fears of another wave of energy company collapses.
Prime minister Liz Truss, on her third day in office, said she wanted to make sure energy companies have the cash they need to buy energy if prices jump. Reports this week said British Gas owner Centrica was in talks with banks to secure extra cash as Vladimir Putin continues to choke off Europe’s supply of gas.
The bailout fund for energy companies was announced alongside a suspension of the energy price cap, which Truss replaced with an “energy price guarantee” to freeze household energy bills for two years. The government will also offer “equivalent support” for six months for businesses – most of whom have not received any financial aid to address the energy crisis prompted by Russia’s invasion of Ukraine.
Companies who use the Bank of England’s energy markets financing scheme will have to sign up to a “wider set of conditions”, the Treasury said. During the coronavirus pandemic support schemes some companies were banned from paying dividends after receiving loans.
Amid warnings energy markets were facing a “Lehman” moment, when a liquidity crunch precipitated the global banking crisis, the government said the scheme would provide “last resort” financing. The money will essentially guarantee that energy suppliers can pay for any power they commit to buying in the wholesale markets, as well as letting them insure themselves to protect against price rises.
Surging prices have prompted ballooning calls for collateral for energy trades, forcing even the largest suppliers to turn to their banks to increase their overdrafts. The governments of Sweden and Finland stepped in
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