Britain’s energy sector faces a crisis similar to the 2008 financial crash, the boss of a leading supplier has warned ahead of a crunch meeting with the Business Secretary on Monday.
Stephen Fitzpatrick, boss of Ovo Energy, Britain’s second-largest energy supplier, compared the current situation with the delay between the collapse of Northern Rock in 2007, and the downfall of Lehman Brothers a year later.
“I don’t think we’re at the end of the energy crisis right now,” he told The Telegraph, warning ministers and regulators have just weeks to act to avoid further company failures and devastating price increases.
His comments come as energy suppliers head into crunch talks led by Kwasi Kwarteng on Monday, to discuss reforms to the market in a bid to avoid further collapses.
UK gas prices touched a record high of 470p per therm last week, after months of unprecedented highs amid a supply squeeze. The cost of energy has been driven up by low levels of storage in Europe and lower output from clean energy sources, in part because of weak wind speeds.
As suppliers are forced to shoulder increased prices, since the price cap prevents them from passing costs on to their customers, more risk being driven out of business. A total of 26 retail energy companies have gone bust since August, while challenger Bulb – the UK’s 7th biggest provider – has entered special administration. Bulb did not comment.
Last week executives at EDF, Good Energy and trade body Energy UK urged ministers to step in following the surge in wholesale gas prices, with many on the brink of disaster.
“I think it’s a likely scenario that there’ll be more market failures,” said Mr Fitzpatrick. “I’d say anybody that survived through to this stage has obviously been doing something right.”
Millions of households are expected to be hit by the soaring energy costs, however, when the price cap is raised next spring. Analysts at Investec have warned the average capped bill could rise by more than £700 per year, to £2000 in April – roughly £60 extra per month. This would be 75pc higher than it was in September.
Mr Fitzpatrick, who said he has been in discussions with Mr Kwarteng in recent days, argued: “The way things are at the minute everybody’s losing, because the market structure as it is isn’t fit for purpose. We simply haven’t seen any action from the regulator or from the Government to address that.
“I think they accept there’s a problem, they’ve just been really slow in finding a solution. And I think we really do have a short period of time [to] fix it.”
He warned a price surge could “cripple” consumer spending. Another energy firm boss told The Telegraph that ministers should remove the price cap entirely.
“It was introduced to prevent customers being taken care of [but] it’s clearly no longer fit for that purpose,” they said.
“It is perverse that those rescuing orphaned customers of poorly run loss making businesses can’t pass on very real costs.”
A Government spokesperson said: “We regularly engage with the energy industry and will continue to ensure that consumers are protected through the energy price cap, which is insulating millions from record global gas prices.”
Meanwhile, crunch talks come as Neivan Boroujerdi of Wood Mackenzie warned of a potential windfall tax for North Sea oil companies on the back of surging profits.
The energy consultant said in a report that he expects producers to be booking “near-record” profits in 2022, given steady production growth, high oil and gas prices and spending discipline.
“The savage cost cuts carried out during previous downturns will combine with strong prices to generate cash flow generation levels last seen before the 2008 financial crash,” he said.
Mr Boroujerdi argued a windfall tax “cannot be ruled out”, and would meet “strong resistance” from producers “who would typically stop investment in response”.
There is a precedent for windfall taxes on North Sea oil and gas. Margaret Thatcher raised £2.4bn with a tax on such companies in 1982 and Labour proposed a one-off raid on producers in the run-up to the 2019 General Election, to fund a transition to green energy.
A Treasury spokesperson declined to comment on future tax policy, but said Britain’s oil and gas industry is “an important part of the UK economy”.