Today marks the launch of the ‘Energy Markets Financing Scheme’, which aims to protect viable energy enterprises with significant UK operations from the exceptional volatility caused by Russia’s illegal invasion of Ukraine.
These companies will be able to seek for government-backed guarantees in order to get commercial financing and cover hefty margin calls caused by volatile energy prices.
Following a thorough clearance process, commercial banks will receive a 100 percent guarantee on additional financing to qualified enterprises. Government liability will only arise if a company defaults on its repayment obligations.
Russia’s ruthless and unlawful invasion of Ukraine has caused wholesale energy markets to experience unprecedented instability. Natural gas futures prices have fluctuated daily by more than 15% during the past month.
This backup plan will assist businesses with temporary short-term finance issues. The EMFS would enable commercial banks to extend greater credit lines to energy firms that have been approved but are unable to make margin calls due to extreme price fluctuations.
This crucial intervention will aid in bolstering confidence in the energy market and may cut the final energy costs for businesses and consumers.
The program will be available to creditworthy enterprises that play a substantial role in the UK energy markets as generators, transporters, or suppliers. They must now operate on the British energy market and be Ofgem-licensed, or have a subsidiary that does. When hedging their energy price risk, businesses will be required to demonstrate they face substantial liquidity requirements due to margin calls. The EMFS is comparable to plans introduced in Germany, Finland, and Sweden.
Chancellor of the Exchequer Jeremy Hunt stated, “A resilient energy market is essential as we all deal with the aftermath of Putin’s terrible invasion of Ukraine and his choice to weaponize Russia’s energy riches.”
Today, we are continuing our efforts to ensure the security of the market, thereby considerably minimizing the possibility of market collapse.
Governor of the Bank of England, Andrew Bailey, stated, “The recent volatility in energy markets, triggered by Russia’s invasion of Ukraine, has resulted in a number of energy corporations experiencing significant liquidity requirements.”
This scheme will provide these enterprises with short-term financial support so they can weather this period, while also bolstering the overall resilience of the UK’s energy markets.”
Beginning immediately, the Bank will evaluate initial applications for eligibility. Then, before granting final permission, HM Treasury will thoroughly evaluate credit risks and restrictions. The Bank will then provide a guarantee of 100 percent to the energy firms’ existing commercial bank or banks that they utilize for further lending. Energy companies will be expected to adhere to a set of policy constraints, such as restrictions on the use of funds, executive compensation, and capital distributions, while participating in the program.
Firms have three months to submit an application, and once granted, they will receive a 12-month guarantee.
State-owned enterprises and energy companies owned by financial institutions and commodity trading corporations are ineligible for the program.
The ‘Energy Markets Financing Scheme’ was launched alongside the Energy Price Guarantee on 8 September 2022, with additional details confirmed on 23 September 2022 as part of the Government’s Growth Plan.
Additional information:
Here is where the Market Notice will be released. The plan will accept applications from the 17th of October 2022 through the 27th of January 2023, with the publication of more information and guidelines, including the application process and eligibility requirements.
HMT shall settle a verified guarantee claim from a commercial lender in accordance with the 100% guarantee, with the Bank acting as its agent. HMT will indemnify the Bank in full for its participation in the EMFS.
The applications will be evaluated initially by the Bank of England and then by an Advisory Committee, which will make a recommendation to the Chancellor on whether to accept or reject the application.
Once the program is launched, HM Treasury, with the assistance of UK Government Investments, will administer and monitor its utilization. Additionally, HM Treasury and the Bank will conduct and exchange reporting on the scheme elements for which they are responsible.
The EMFS is in addition to the Energy Bill Relief Scheme, which applies to all eligible non-domestic customers, and the Energy Price Guarantee, which ensures that a typical household in the United Kingdom will pay approximately £2,500 per year on their energy bill, depending on their consumption, for the next two years, beginning on 1 October 2022.