Energy suppliers risk failing with taxpayers’ cash onboard, Centrica chief warns
The chief executive of British Gas owner Centrica has warned that more energy suppliers could go bust this winter – with million of pounds of taxpayer cash on their balance sheets.
Chris O’Shea said he believed that some suppliers were “poorly capitalised”, and risked going bust and “taking taxpayer money with them”.
Under the Energy Price Guarantee, introduced by Liz Truss, energy suppliers are handed government money upfront to cover the difference between wholesale energy costs and the EPG, which keeps typical household bills at about £2,500.
O’Shea told the Guardian “We’ve got these poorly capitalised companies, there’s a risk if you give them extra money in advance. What happens if there’s another failure and they take taxpayers money with them? Our view isthat we should be responsible for administering the government schemes and they should reimburse us after we’ve uncovered the expenditure.”
A spike in the wholesale price of gas exposed the weak balance sheets of almost 30 suppliers since the start of the energy crisis last year.
O’Shea said he believes “we will see some supplier failures” this winter and that some companies may be trading while technically insolvent.
He has argued that energy suppliers should have tougher rules on the amount of cash they hold and that customers’ deposits should be ringfenced. Energy regulator Ofgem ignored the latter call last week.
It is understood O’Shea wrote to the chancellor, Jeremy Hunt, before the EPG was implemented asking for suppliers to be paid in arrears.
O’Shea was speaking at the Easington gas terminal near Hull on the east Yorkshire coast, which began processing new gas injected into the huge Rough offshore storage site in the North Sea on Tuesday for the first time since 2017. Easington, which can process 20% of Britain’s peak gas needs, is where gas from Rough is brought on shore and put into the grid.
Low wind and solar activity in the UK on Tuesday meant that the vast undersea cavern was called into action amid jitters over Britain’s energy capacity this winter.
Centrica has reopened the site for gas storage at 20% of its previous capacity after a request from the government earlier this year. The use of the site for storage was deemed uneconomic in 2017, and it has been used as a production facility for natural gas since.
Centrica has been discussing making a £150m investment to double the gas storage in Rough to 60bn cubic feet by next winter with the government.
O’Shea said the company was also
prepared to invest up to £2bn to convert the Rough facility to hold hydrogen in as little as five years with a funding mechanism that would guarantee revenues if wholesale prices dropped.
“We’re looking for the right regulator framework that supports the investment to make sure that the returns justify the £2bn,” he said.
As the government confirmed its investment in the Sizewell C nuclear power station in Suffolk, O’Shea reiterated the company’s interest in the £30bn project. Centrica has a 20% stake in Britain’s existing nuclear fleet, which is run by Sizewell C developer EDF.
“We need to see the terms of that deal [between government and EDF]. We’re a partner in Sizewell B. Once we’ve seen the terms we’ll discuss that as a board. It’s in line with our strategy – it’s zero-carbon electricity generation,” O’Shea said.
Asked about the impact of the toughened windfall tax on oil and gas and a new levy on electricity generators, O’Shea said: “We will review our investments based on the factors in play just now, but you also have to take a view of the risk of those things changing and undoubtedly that is heightened at the moment given what we’ve seen in the past few months.”