Impending UK energy bailout implies a quid pro quo

British energy companies yearn for a state bailout. With average annual customer bills already 50% above their 2021 level, companies like EDF and Centrica want politicians to approve an aid package that could theoretically exceed £100bn ($118bn). euros). It is logical, since the rise in wholesale prices makes the bills higher and higher, but the agreement implies a counterpart.

Energy providers and politicians are about to reach a consensus on the so-called “tariff deficit plan”, say sources close to them. Under the plan, all 29 million British households would have their electricity bill capped at its current level of 1,971 pounds (2,325 euros). Private banks or the government would lend to a fund, which would advance suppliers the difference between wholesale energy prices and what customers pay. The energy groups would return the money to the fund as the crisis subsided, charging customers an increase in their bills for a decade or so.

The idea is simple and necessary. But it will cost a lot. Closing the gap between gas prices and bills could require at least 2,000 pounds (2,300 euros) per household. If wholesale gas prices remain high for two years, as future values ​​suggest, the cost would be £116bn (€137bn). That’s almost 5% of GDP, and is in line with the $133 billion ($157 billion) in cash aid given to banks in the global financial crisis.

It is not surprising that the executives of the utilities emphasize the difference between 2008 and 2022. They argue that this is a bailout for customers and not their business models, and that those customers will pay back. If British private sector banks such as Barclays were to lend to the fund, the plan would not need to inflate Britain’s debt, which already amounts to around 100% of GDP. Politicians could cut costs by raising taxes on energy giants like BP.

However, a bank-funded scheme could cause quite a stir when consumers realize they are paying interest on top of energy costs. Governments could reduce borrowing costs by insuring banks against losses. But that can make it more difficult to prevent the debt from going onto the state balance sheet.

Banks that took state capital in 2008 had restrictions on dividends and faced pressure over executive salaries. In theory, the government could force utilities to accelerate zero carbon targets and to install heat pumps in exchange for taxpayers’ help. But it is not difficult to imagine also punitive measures such as the prohibition of bonuses and payment to shareholders. Power groups may not be as much to blame for the energy crisis, but some of the fallout from state aid could be strikingly similar to the banking crisis.