HM Treasury and the Bank of England are opening the Energy Market
Financing Scheme (EMFS) for applications.
The EMFS was announced on 8 September, and in The Growth Plan the
then Chancellor confirmed that it will provide a 100% guarantee
to commercial banks to provide additional lending to energy
firms.
Delivered with the Bank of England, this scheme addresses the
extraordinary liquidity requirements faced by energy firms
operating in UK wholesale gas and electricity markets as a result
of margin calls.
Energy prices have been high and volatile this year. As a result,
large amounts of collateral are required to enter into contracts
firms use to effectively insure themselves from price
fluctuations, or otherwise firms must accept large credit
exposures to their counterparties.
The details of the scheme were announced on 17 October, and firms
can apply via the Bank of England.
The application window will remain open until noon GMT on 27
January 2023; however, guarantees will last for 12 months from
when an application is approved. Firms are encouraged to engage
the Bank of England in advance of the deadline if considering an
application as part of forward planning at: EMFS-Applications@bankofengland.co.uk.
The scheme is aimed at providing a backstop to support energy
firms facing large and unexpected margin calls. Pricing and
conditions will reflect this objective. The scheme will provide
resilience to energy markets and therefore help to reduce the
eventual cost for businesses and consumers.
Further details on the structure of the scheme can be found on
the Bank of England’s website and the market notice. To apply to
the scheme please contact EMFS-Applications@bankofengland.co.uk
Scheme Eligibility
As part of the application process, firms will need to
demonstrate that they meet the eligibility criteria.
The EMFS is intended to support energy firms who are facing
short term liquidity challenges but would be otherwise in sound
financial health. Eligibility will be considered based on the
following criteria:
- Firms must demonstrate they are in sound financial health
(firms must be otherwise solvent and solvency will be assessed
through robust due diligence processes)
- Firms must be licenced by either Ofgem(or have an entity in
the Energy Firm’s group that is Ofgem-licenced) or the Utility
Regulator in Northern Ireland (or have an affiliate of the Energy
Firm that is licenced by the Utility Regulator of Northern
Ireland)
- Firms must also have a pre-existing relationship with an
approved commercial bank or banks
In addition, firms must also demonstrate they are making a
material contribution to UK energy markets, in line with criteria
set out in the market notice.
Eligibility will be assessed by the Bank of England and an
Advisory Committee convened by HMT, who will make a
recommendation for the Chancellor to make a decision to approve
or reject each application.
Eligible firms who wish to apply for a guarantee will be required
to comply with a set of policy conditions, such as restrictions
on executive pay and capital distributions, when they draw down
on the facility. For the full list of conditions, please refer to
the market notice.
Energy firms that are ultimately owned by banks, building
societies, insurance companies, and other financial sector
entities regulated by the Bank of England or the Financial
Conduct Authority will not be eligible. Firms within groups that
are predominantly active in business subject to financial sector
regulation will also not be eligible.
Energy firms will not be eligible if state-owned entities,
national governments, regional governments and/or municipalities
hold, directly or indirectly, more than 25 per cent of its issued
securities and/or voting rights, or if such entities exercise
direct or indirect control over the energy firm.
If the ownership of the firm changes so that the above criteria
for exclusion are met, no further loans shall be advanced under
the scheme.
Application process
Firms can apply to the scheme for the next three months. Each
loan facility agreement will last up to 12 months and will begin
from when the guarantee is issued by the commercial lender.
Applications will be assessed initially by the Bank of England,
and then by Advisory Committee, who will make a recommendation
for the Chancellor to decide whether to approve or reject an
application.
To apply for the scheme, please email EMFS-Applications@bankofengland.co.uk.
For further details on the scheme, please visit here.
Further information
