Open for Business: The Energy Markets Financing Scheme

Posted on Oct 18, 2022. by NTI

In a rare and almost exclusive moment of 'sticking to what we previously promised' the joint HM Treasury and Bank of England Energy Markets Financing Scheme opened for applications yesterday (Monday 17 October).

The principal aims of the Scheme are to help support viable energy firms with major operations in the UK from the volatility triggered by war and Putin and instability and everything else on and above the horizon by supplying Government-backed guarantees to secure commercial financing and meet large margin calls from energy price volatility.

If you are an energy firm and can spare a moment away from industrial counselling you have three months to apply and once approved will be able to benefit from a guarantee for a further 12 months.

The Scheme is open to applications from 17 October 2022 and you have until noon on 27 January 2023 to send in your forms. Following the approval process, a 100% guarantee will be issued to commercial banks on additional lending for approved firms. The Government will only be liable if a firm defaults on their repayment.

There is a backstop scheme, which aims to help firms facing temporary short-term financing problems. It will allow commercial banks to provide larger credit lines to approved energy firms that are unable to meet extraordinary margin calls due to large moves in energy prices. The scheme is open to firms of good credit quality playing a significant role in UK energy markets, as generators, shippers or suppliers. They must currently operate in the UK energy market and must be, or have an entity which is, Ofgem-licensed. Firms will need to demonstrate they are facing large liquidity needs from margin calls when hedging their energy price risk. The Energy Markets Financing Scheme is broadly similar to schemes launched across continental Europe and we hope ours will be every bit as efficient and worthy. 

The Bank of England will screen initial applications for eligibility. HM Treasury will then assess the credit risks and limits before giving final approval. The Bank will then issue a 100 per cent guarantee to the energy firms’ existing commercial bank or banks they use for additional lending. Whilst using the scheme, energy firms will be required to comply with a set of policy conditions, such as restrictions on the use of funds, executive pay, and capital distributions.

State-owned firms and energy firms owned by financial institutions and commodity trading houses will not be eligible for the scheme. 

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