HM Treasury and the Bank of England are today opening the Energy
Market Financing Scheme (EMFS) for applications.
The EMFS was announced by the Prime Minister 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 in recent months. 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 are being announced today, and firms
can start to apply via the Bank of England. Applications will be
accepted for a period of three months.
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 published
today. 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 Ofgem-licensed (or have an Ofgem-licensed
entity), and 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 through meeting one or
more of the requirements outlined below:
-
They make material contribution to the UK electricity or gas
markets and can demonstrate that they are likely exposed to
large margin calls;
-
They are heavily inter-connected and the loss of activity
would have a significant impact on markets or other energy
firms.
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. For the full list of
conditions, please refer to the market notice.
Financial institutions, state owned enterprises or commodity
trading houses are not eligible for this scheme. State owned
enterprises should seek to access alternative support from their
relevant governments before approaching the Government.
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
