The EMFS was introduced by the Prime Minister on September 8, and the then-Chancellor affirmed in The Growth Plan that it will provide a 100 percent guarantee to commercial banks for further financing to energy companies.
This plan, developed in collaboration with the Bank of England, tackles the unusual liquidity needs of energy companies operating on UK wholesale gas and electricity markets due to margin calls.
In recent months, energy costs have been high and fluctuating. As a result, enterprises must post substantial collateral to enter into contracts that effectively insure them against price volatility, or they must assume substantial credit risks to their counterparties.
Today, the Bank of England is announcing the scheme’s specifics, and businesses can begin submitting applications. Three months will be allotted for the submission of applications.
The plan aims to provide a safety net for energy companies facing unexpectedly significant margin calls. The terms and pricing will reflect this purpose. The initiative will provide energy market resiliency and, as a result, assist in reducing the final cost to businesses and consumers.
Further information on the scheme’s structure is available on the Bank of England’s website and in today’s market announcement. To submit an application, please email EMFS-Applications@bankofengland.co.uk.
Scheme Eligibility
As part of the application procedure, businesses must provide evidence that they meet the eligibility requirements.
The EMFS is meant to assist energy companies who are experiencing short-term liquidity issues but are generally in good financial health. Consideration of eligibility will be based on the following criteria:
Companies must demonstrate that their finances are in good shape (firms must be otherwise solvent and solvency will be assessed through robust due diligence processes)
Firms must be Ofgem-licensed (or have a subsidiary that is Ofgem-licensed) and have a pre-existing partnership with an approved commercial bank or banks.
In addition, businesses must demonstrate they are making a significant contribution to the UK energy markets by achieving one or more of the following requirements:
They make a significant contribution to the electricity or gas markets in the United Kingdom and can demonstrate that they are susceptible to massive margin calls.
They are intricately intertwined, and the absence of activity would have a substantial impact on markets or other energy companies.
Each application will be evaluated for eligibility by the Bank of England and an Advisory Committee convened by HMT, who will make a recommendation for the Chancellor’s approval or rejection.
Applicants for a guarantee will be expected to adhere to a series of policy criteria, including restrictions on executive pay and capital distributions. Please refer to the market notice for a complete list of conditions.
This program is ineligible for financial institutions, state-owned firms, and commodity trading companies. Before addressing the government, state-owned firms should seek out alternative backing from their own governments.
Application process
Throughout the following three months, companies can apply for the program. Each credit facility agreement will have a maximum duration of one year, commencing when the commercial lender issues the guarantee.
The Bank of England will evaluate applications initially, followed by the Advisory Committee, which will make a recommendation to the Chancellor on whether to approve or reject an application.
Please send an email to EMFS-Applications@bankofengland.co.uk to apply for the program. Please click here for more information on the program.