6.1 C
London
HomeBusinessMoneyFresh wave of energy firms could go bust as CNG axes UK...

Fresh wave of energy firms could go bust as CNG axes UK business deals

A fresh wave of energy firms are likely to go bust after Glencore-backed gas shipper CNG Group cut off business with UK household suppliers this week.

Some smaller energy firms CNG has ceased business with could see costs spiral beyond their means and this is likely to be the catalyst for more household suppliers to collapse within the next week, according to industry insiders.

The firm has 18 utility customers, which will now need to seek an alternative shipper – a prospect industry insiders say is a tough ask. The decision will also potentially hitting schools, businesses and hospitals CNG directly supplies.

Record gas prices have seen a number of firms go bust in the last two months, with BP-backed Pure Planet and smaller supplier Colorado Energy the latest this week leaving 250,000 households facing a new supplier and higher bills.

The energy crisis continues to spiral as gas prices rise and suppliers go bust 

An estimated two million British households have now been forced to change suppliers and many of them will be shunted onto a standard variable rate, which is likely to be higher than any fixed deal they would have had previously.

Bloomberg reported this week that CNG boss Paul Stanley had confirmed that ‘the company has been forced into an impossible position’ after many of its clients ceased trading during the energy crisis. 

A spokesperson from energy regulator Ofgem said: ‘In recent weeks there has been an unprecedented increase in global gas prices which is unfortunately putting financial pressure on energy companies.

‘Our number one priority is protecting customers. If a gas shipper stops trading, industry processes ensure that gas supplies continue uninterrupted.’

While ‘supplier of last resort’ measures mean consumers are automatically switched when their supplier collapses, the same is not true for the utility firms themselves.

This potentially leaves energy firms buying gas from CNG left looking for a new supplier, which will charge them market rate rather than the previous prices agreed. 

Craig Lowrey, senior consultant at Cornwall Insight, explained: ‘Shippers play an important role within the industry given the suppliers effectively cannot sell gas to customers without them

‘Unlike when a supplier exits and the process is managed through the SoLR process, there is no corresponding arrangement for shippers, which puts the industry in uncharted regulatory territory.’

Suppliers without a shipper will now have to pay the National Grid for the cost incurred, Lowery said, ‘which has been equivalent to a rate approximately three times the implied wholesale gas price in the Winter 2021-22 default tariff cap’.

He added: ‘Suppliers with existing contracts with a supplier that ceases providing its services could be forced to unwind their positions and re-hedge them with a new shipper – which would again incur a cost assuming such an action was possible.

‘The increased use of imbalance will be reflected in wider gas system costs and spread across all users.’  

Andy Harris, consultant to the board of green energy firm Neon Reef, told This is Money there is a good chance a number of GNG’s UK gas supplier customers will go under.

He said: ‘They may have to put down cash fast to gas transporters as security based on their gas volume, which they may not be able to. Especially given the very high prices of gas they are already paying. 

‘Depending on their relationship with CNG they may also have pre-paid some or all of these security costs and so could be faced with paying the cost twice.

‘And they will have to find an alternative shipper within a few weeks, which they may also not be able to do – it is naturally dependent on whether another shipper is prepared to contract with them.’

There are fears too that the CNG’s decision could badly affect non-household customers like schools, hospitals and business, which the firm supplies directly, 

Harris said: ‘There is speculation that this part of their business will also close. There is a SoLR process here, but there is no protection on their credit balances.’ 

Fears that the energy crisis could cause industry shutdowns this winter

Fears that the energy crisis could cause industry shutdowns this winter

But the broader economy may also be under threat as the energy crisis continues to spiral. 

Founder of manufacturing giant Ineos Sir Jim Ratcliffe warned this week that high gas prices will continue throughout winter and industry could be forced to close if supplies run out.

Asked if the country could shut down due to a prolonged cold spell, Ratcliffe said ‘Yeah, in which case then, what you would do is you’d shut down industry.’

‘I think it’s quite difficult to predict how long this sort of current situation’s going to last, but you know I suppose if you were a betting man you’d assume it would probably run through at least through the winter because obviously our gas demand increases in the winter.’ 

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

Stay Connected
16,985FansLike
2,458FollowersFollow
spot_img
Must Read
You might also like

LEAVE A REPLY

Please enter your comment!
Please enter your name here