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British energy firms fear collapse as Europe’s gas crisis sees prices surge 250%

20 points by underscore_ku 5y ago

ALittleLight 5y ago
I didn't really get the "why" from this article. Some language at the end suggests it's related to climate initiatives, in that, if European countries move to cap prices they will risk failing climate goals. Seems like there should have been much more investment in nuclear...
- JPLeRouzic 5y ago
  Citation: "Robert Buckley, head of relationship development at Cornwall Insight, told CNBC that the crisis was being caused by a “cocktail of pretty potent things” that were outside of suppliers’ control. These included strong competition for natural gas deliveries between Europe and Asia, some outages at U.S. production facilities, and a tightening of EU carbon market rules, as well as various other factors."
- evgen 5y ago
  It is due to the fact that a lot of these second-tier energy firms were selling fixed tariff contracts to their customers. This was fine when energy prices were low, but it left them exposed if the prices spiked. These new/small energy companies also did not have the resources to hedge their risk and are getting completely wiped out. The big players in the market were able to hedge their contracts and are not in danger. When a firm goes bust its customers get sent elsewhere and are forced to sign with one of the big energy companies, but will end up paying the max rate (capped, so it is not too extreme, but a lot of lower income people who switched to these small providers to lock in a good rate are now facing some unpleasant decisions as winter approaches...) [The various climate related bits add pennies to the bill and really have nothing to do with the problem, but it would not be a US biz infotainment show if it did not blame taxes or regulation in some way...]
  - qeternity 5y ago
    > These new/small energy companies also did not have the resources to hedge their risk and are getting completely wiped out. I keep seeing this, but it’s just not true. Hedging has low fixed costs, and is mostly variable cost. And given their smaller balance sheets small companies should absolutely be hedging, more so than large companies who might be able to draw revolving capital facilities or long term off takes if need be.
- jjgreen 5y ago
  There's a "pseudo market" for energy in the UK, lots of small players that don't generate, just buy and sell to consumers; and these small players have a lighter regulation than the big-boys. A lot of them don't bother to hedge against price-rises (that costs) and other regulations mean they can't pass market rates to their customers, so there's a big chunk of the providers looking at bankruptcy, and soon.
pornel 5y ago
Good. We have a climate crisis. We need the existing industry to collapse.
- evgen 5y ago
  It isn't the 'existing industry' that is collapsing, it is low-rate entrants to the UK energy market who are just middlemen between the actual producers and consumers. The major players are going to do just fine and the poor are going to get screwed with higher rates as their low-cost contracts collapse and they are forced to sign to a higher rate with a major energy firm. It is a tough job to pull off being both ignorant and cruel, but you manage it with aplomb.
  - toomuchtodo 5y ago
    Those lower unhedged rates from energy trading startups should’ve never existed and were unsustainable (as proven by this tail risk). This is Griddy in Texas during the February 2021 freeze event all over again. It’s like auto insurance: it’s cheaper to go without up until the accident. https://en.wikipedia.org/wiki/Griddy https://en.wikipedia.org/wiki/Griddy
  - pornel 5y ago
    Companies are not people — there's no need to be sorry for them. Bankruptcy is a normal, healthy, and necessary part of capitalism. Customers can switch. The government already has incentives for installarion of heat pumps and insulation (it could do better).
    - deleted 5y ago
      [deleted]

20 points by underscore_ku 5y ago

I didn't really get the "why" from this article. Some language at the end suggests it's related to climate initiatives, in that, if European countries move to cap prices they will risk failing climate goals. Seems like there should have been much more investment in nuclear...

JPLeRouzic 5y ago
Citation: "Robert Buckley, head of relationship development at Cornwall Insight, told CNBC that the crisis was being caused by a “cocktail of pretty potent things” that were outside of suppliers’ control. These included strong competition for natural gas deliveries between Europe and Asia, some outages at U.S. production facilities, and a tightening of EU carbon market rules, as well as various other factors."
evgen 5y ago
It is due to the fact that a lot of these second-tier energy firms were selling fixed tariff contracts to their customers. This was fine when energy prices were low, but it left them exposed if the prices spiked. These new/small energy companies also did not have the resources to hedge their risk and are getting completely wiped out. The big players in the market were able to hedge their contracts and are not in danger. When a firm goes bust its customers get sent elsewhere and are forced to sign with one of the big energy companies, but will end up paying the max rate (capped, so it is not too extreme, but a lot of lower income people who switched to these small providers to lock in a good rate are now facing some unpleasant decisions as winter approaches...) [The various climate related bits add pennies to the bill and really have nothing to do with the problem, but it would not be a US biz infotainment show if it did not blame taxes or regulation in some way...]
- qeternity 5y ago
  > These new/small energy companies also did not have the resources to hedge their risk and are getting completely wiped out. I keep seeing this, but it’s just not true. Hedging has low fixed costs, and is mostly variable cost. And given their smaller balance sheets small companies should absolutely be hedging, more so than large companies who might be able to draw revolving capital facilities or long term off takes if need be.
jjgreen 5y ago
There's a "pseudo market" for energy in the UK, lots of small players that don't generate, just buy and sell to consumers; and these small players have a lighter regulation than the big-boys. A lot of them don't bother to hedge against price-rises (that costs) and other regulations mean they can't pass market rates to their customers, so there's a big chunk of the providers looking at bankruptcy, and soon.

pornel 5y ago

Good. We have a climate crisis. We need the existing industry to collapse.

evgen 5y ago
It isn't the 'existing industry' that is collapsing, it is low-rate entrants to the UK energy market who are just middlemen between the actual producers and consumers. The major players are going to do just fine and the poor are going to get screwed with higher rates as their low-cost contracts collapse and they are forced to sign to a higher rate with a major energy firm. It is a tough job to pull off being both ignorant and cruel, but you manage it with aplomb.
- toomuchtodo 5y ago
  Those lower unhedged rates from energy trading startups should’ve never existed and were unsustainable (as proven by this tail risk). This is Griddy in Texas during the February 2021 freeze event all over again. It’s like auto insurance: it’s cheaper to go without up until the accident. https://en.wikipedia.org/wiki/Griddy https://en.wikipedia.org/wiki/Griddy
- pornel 5y ago
  Companies are not people — there's no need to be sorry for them. Bankruptcy is a normal, healthy, and necessary part of capitalism. Customers can switch. The government already has incentives for installarion of heat pumps and insulation (it could do better).
  - deleted 5y ago
    [deleted]