Energy companies with cash-strapped employees who take out Covid-style support loans this winter will have to create net zero plans. They will also be prohibited from paying dividends or bonuses.
Last month, the Government and Bank of England announced the £40bn Energy Markets Financing Scheme to provide emergency cash to assist generators, suppliers, and shippers who are facing rising gas and electricity prices.
However, the scheme was opened Monday and companies were informed that they will have to accept strict conditions.
A notice from the Bank stated that recipients will not be permitted to issue dividends or share buybacks, return to equity, discretionary bonuses pay-outs or modify senior management pay packages.
These conditions will apply until the end of 2023 or 12 months from the date that companies take out credit under the scheme.
The Government will ask energy companies to disclose whether they have a net zero plan. Those who don’t have one will be required to provide one within six months or before the scheme ends. The UK has set a goal of reducing carbon emissions by zero net by 2050. Transition plans are the steps a company will take to achieve this goal.
These restrictions mirror similar requirements that were placed on companies who took out Covid support loans during a pandemic.
Jeremy Hunt, the Chancellor, stated that the financing plan would “significantly reduce any market failure risk”.
He said: ” As we grapple with the aftermath of Putin’s terrible invasion of Ukraine, and his decision to arm Russia’s energy resources, is crucial.”
This was just a few days after BP announced that it had purchased a US producer of renewable gas for $4.1bn (£3.6bn), in an effort to support its net zero ambitions. BP stated that Archaea Energy would roughly double its earnings from renewable natural gases to $2bn by 2030.
Adam Berman, deputy director for industry group Energy UK, was happy to support the initiative but warned that too strict conditions could prevent the very companies that are needed to ensure our energy security.
The scheme will provide additional cash support for energy companies that purchase gas and electricity ahead of their customers, a practice known as “hedging”. This helps them to cope with rising prices.
To protect themselves from future price swings, suppliers must spend more to buy energy at current high prices.
Sectoral capital requirements can strain balance sheets.
According to the Government, the scheme was created as a last resort for suppliers. It will reduce costs and stabilize energy markets.
It will likely be similar to the Covid scheme, which allowed banks to purchase short-term debt from businesses, giving them cash to help them through the pandemic.
The Covid Corporate Financing Facility lent more than £37bn.
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