Hm Treasury
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 Englands 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 Firms 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.