Centrica: Geopolitical woes fuel case for tougher regulation

The vulnerability of the UK’s energy security to geopolitical influences means the sector requires a “robust” regulatory framework, such as the one introduced in banking after the financial crisis, Centrica has warned.

In its submission to the Department for Business, Energy & Industrial Strategy (BEIS) Committee’s ongoing inquiry into the energy market, the supplier calls for Ofgem and the government to carry out  a “fundamental and far-reaching overhaul” of the energy supply market’s regulatory system.

Referring to the strains caused  by Russia’s war with Ukraine, it says: “Energy supply and security are subject to geopolitical influence and the consequences if things go wrong are significant.

“It therefore requires a robust regulatory framework similar to those seen in equivalent sectors, such as banking.”

Centrica’s submission supports the introduction of prudential-style regulation, making senior executives more accountable for failures, “proper” monitoring of risk management, including hedging against future price rises, mandatory capital adequacy requirements for suppliers and maintaining sufficient liquid capital to refund all customers’ credit balances.

The British Gas owner, which closed the UK’s biggest gas storage facility, also backs investment in additional capacity.

Centrica says it decided to close the Rough facility in 2017 after identifying maintenance issues that were not economically viable to repair.

However in its submission, the company says it would be “prudent” for the UK to invest in additional gas storage as an “additional buffer” to boost the robustness of the supply chain and reduce the impact of further price volatility.

While additional storage would have been unlikely to reduce materially the overall the level of recent gas prices, it would increase the market’s confidence about the UK’s resilience during periods of high demand and is therefore likely to help to help reduce spikes during periods of stress.

The flexible nature of Rough means it could be used as methane gas storage, says Centrica, which long-term is hoping to repurpose the facility to store hydrogen.

The government’s decision to allow Rough’s closure has attracted strong criticism from Labour throughout the ongoing energy market crisis for increasing the UK’s vulnerability to potential gas supply shortages.