Kwarteng insists energy safety nets have yet to be fully tested

The business and energy secretary has told MPs it is premature to discuss setting up a bad bank for customers of failed energy suppliers because existing mechanisms to deal with the problem have not been fully tested.

But pressed on reports that the government is examining the creation of a vehicle to pick up loss-making customers which surviving retailers are reluctant to take on, Kwasi Kwarteng said the government is planning for a range of contingencies.

Quizzed by the House of Commons Business, Energy & Industrial Strategy (BEIS) select committee this morning (22 September) about the fallout from soaring gas prices , Kwarteng said that the Supplier of Last Resort (SoLR) and Special Administration Regime (SAR) mechanisms are “robust”.

He said the SoLR mechanism has successfully transferred customers of the spate of energy supply company failures during the current crisis.

And the SAR, which allows failing company’s existing managements to remain in control while options for rescuing or restructuring the business are pursued, has not yet been necessary, he said: “It is not fair that we were completely at sea.

“The fact that the SAR hasn’t been tested is a good thing: it’s like complaining that the lifeboats aren’t being used.

“It is a good thing that it hasn’t been tested and it is there should the need arise.”

But the secretary of state left the door open for further intervention in the energy retail market should it be necessary.

He said: “We want (the current protections) to be tested and don’t want to go beyond them but are planning for other contingencies.”

Arguing that the energy retail market is already characterised by heavy churn, Kwarteng also reiterated his opposition to a government bail-out of failing supply companies.

“Some existing (companies) have only been in for a year to a year and a half. We don’t want to put taxpayers’ money into a company only to exit after a year.”

He added that relatively new suppliers could not complain about the existence of the energy price cap, given that it had been in place when they entered the market.

“It cannot be right that companies have entered the market recently and now in difficult times are stretching out hands for taxpayers’ money.”

Kwarteng also dismissed concerns that the UK has run down its gas storage facilities as a “slight red herring” in the context of the current crisis.

The current problems have been caused by the soaring price of natural gas on the global wholesale market rather than the physical shortage of the fuel that storage facilities are designed to remedy, he said: “No matter what storage you have, it doesn’t affect the global price.

“It’s been made a big thing of but doesn’t really address the problem.”

Adding that the UK is less reliant on gas due to the greater range of renewable electricity supply that it has developed, he said: “Storage doesn’t affect the global price and isn’t going to help you in that situation because the people storing it will sell it at higher market price and the longer the market price stays high, the less storage can mitigate that. It’s a legitimate debate but not that relevant.”

Joanna Whittington, director general for energy and security at BEIS, said storage is more helpful for the day-to-day balancing of the gas system rather than longer-term issues.

However, Kwarteng said he was keen to pursue efforts to develop pumped hydro storage.

He also told the committee that the UK’s withdrawal from the EU had not affected his co-operation with energy ministers from neighbouring countries during the current crisis difference and that boosting renewable generation would cut the risk of Britain being held at ransom by Russia over gas supplies.

“Increased diversity of supply will protect us against any shifts to the system which may be deliberately orchestrated by Putin.”

Utility Week has launched its Energy Reset campaign, in a bid to ensure the current crisis results in real reform of the energy retail market.