Energy companies have asked the UK government to back a loan scheme worth up to £100m a month so they can offer payment holidays to households and businesses struggling to settle bills because of the coronavirus pandemic.
Energy UK, a trade body for electricity and gas suppliers, has approached the government about a loan scheme as utility companies report that customers are cancelling direct debit payments, according to several people familiar with the talks.
Analysts fear that if bad debts surge, more companies could be forced out of business in an industry that had already suffered a torrid few years before the Covid-19 pandemic.
The UK government imposed a cap on energy bills for 11m households at the start of last year, adding to a decade-long squeeze on suppliers’ profit margins as market entrants prompted a fierce price war.
Nineteen smaller energy companies have gone to the wall since 2016, according to Ofgem, the energy market regulator.
Details of the proposed loan scheme have yet to be worked out, but the idea is for the government to extend the money to suppliers, who would return the funds once customers were in a position to resume payments, according to the head of one well known energy supplier who spoke on the condition of anonymity.
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“What the energy industry is talking about is targeted support for those whose incomes have fallen precipitously during the Covid-19 crisis,” the chief executive said. “It absolutely should not be a blanket handout programme.”
While the size of loans required was also yet to be agreed, two people familiar with the discussions said, up to £100m a month could be needed.
This month the government and the energy industry issued a joint statement pledging that “any energy customer in financial distress” as a result of the Covid-19 pandemic would “be supported by their supplier”.
But analysts have warned that too many households and businesses defaulting on their bills would put utilities under severe financial pressure. A number of suppliers have said privately that households are already starting to cancel regular payments, while some of their business customers are collapsing, although the industry is yet to collect data on the scale of the problem.
Steve Jennings, head of energy and utilities at PwC, said it was “perfectly sensible” for suppliers to seek a loan scheme. “They are operating on wafer thin margins. It’s not as if they have large cushions to withstand a big shock like this.”
But he added that the government had so far appeared reluctant to extend support to specific industries.
“Everything they [the government] have said so far has been available to all businesses.”
Energy UK confirmed it was “leading discussions with the government on what additional financial support could be required to help these customers [in financial distress] over the coming months”.
The Department for Business, Energy and Industrial Strategy did not immediately respond to a request for comment.