Bank of England offers energy firms backstop to combat soaring costs

Energy firms will be able to apply for Government-backed guaranteed loans to secure their commercial future and meet large margin calls driven by volatile wholesale costs.

The Bank of England and The Treasury has unveiled the ‘Energy Markets Financing Scheme (EMFS)’ following unprecedented instability in the energy markets.

Gas prices climbed to record highs this summer following Russia’s invasion of Ukraine, and while costs have since eased, natural gas futures prices have been changing by more than 15 per cent a day this month.

The backstop scheme will help firms facing temporary short-term financing problems, which have already caused more businesses to close this autumn than 12 months ago.

The EMFS will allow commercial banks to provide larger credit lines to approved energy firms that are unable to meet extraordinary margin calls due to large moves in energy prices.  

Downing Street hope the intervention will help boost wider confidence in the energy market, and could help reduce the eventual cost of energy for businesses and consumers. 

The EMFS is comparable to schemes launched in Germany, Finland and Sweden. 

It will be open to firms of good credit quality playing a significant role in UK energy markets, as generators, shippers or suppliers.

They must currently operate in the UK energy market and must be, or have an entity which is, Ofgem-licensed.

Firms will need to demonstrate they are facing large liquidity needs from margin calls when hedging their energy price risk.

Chancellor Jeremy Hunt, said: “A resilient energy market is vital as we all grapple with the consequences of Putin’s horrifying invasion of Ukraine and his decision to weaponise Russia’s energy reserves.  Today we are continuing to act to ensure the market itself is secure, significantly reducing any risk of market failure.”

Firms have three months to apply and once approved will be able to benefit from a guarantee for a further year.  

State owned firms and energy firms owned by financial institutions and commodity trading houses will not be eligible for the scheme. 

This follows the unveiling of the Energy Bills Relief Scheme, capping gas and electricity prices for six months.