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Factories braced for energy rationing this winter amid fears Russia could turn off the taps

City AM logo City AM 7/3/2022 Nicholas Earl

Energy rationing could be on the cards this winter, with British factory owners suffering constraints to their energy supplies.

There are growing fears Russia could strategically cut off gas into Europe, with Kremlin already halting supplies into multiple companies and countries across the continent which refused to pay for gas in roubles.

The rouble requirement was itself a retaliatory measure to Western sanctions imposed on Russia after its invasion of Ukraine.

National Grid has told energy companies it may impose “involuntary” energy restrictions if other emergency measures such as payments to switch off machinery fail to reduce demand to sustainable levels, according to The Telegraph.

The FTSE 100 company, which runs Britain’s gas mains, has issued the rationing warning in talks with power station owners, as it plans to navigate the coldest months of the year.

It is set to meet major energy suppliers such as SSE, Exxon, Equinor and RWE this coming Thursday to discuss emergency payments to industrial users.

“If demand curtailment is required, it is currently expected to be involuntary via the emergency procedures”, it warned in documents seen by the newspaper, and issued ahead of Thursday’s meeting.

Nevertheless, it wants to hear from users and suppliers about what commercial terms would “stimulate participation.”

Power generators are part of the talks, although the scheme is considered “more suitable” for large industrial users. 

The UK’s largest gas and electricity users include manufacturers such as Tata Steel, British Glass, CF Fertilisers, Ineos, and Jaguar Land Rover – however, it is not clear which companies were part of the talks.

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UK scrambles to secure supplies to stave off blackout fears

Business Secretary Kwasi Kwarteng played down the prospect of a winter blackout last week, dismissing the scenario as an “extreme possibility” when quizzed by the BEIS select committee in Westminster.

Nevertheless, Downing Street has been keen to secure supplies this winter – turning to fossil fuels to ensure demand can be met in the coming months.

While the UK only relies on Russia for four per cent of its gas needs, it would find itself in competition with European buyers for gas if the continent suffered supply shortages.

It has reached an agreement with EDF to extend the life of key coal-fired power plant in Lincolnshire, and is in negotiations with the operators of the two other remaining plants to also continue their operations into next year.

The Government has also been in discussions to permit low-calorie gas to flow through domestic pipelines, while Kwarteng is expected to be handed over the British Geological Society’s report on fracking later this week.

Meanwhile, the National Grid has also encouraged customers to use less energy at peak times and that millions of Brits could even be paid to ration their energy voluntarily.

There are also media reports National Grid could cut off supplies into Europe via its interconnectors with Belgium and Netherlands.

This has exacerbated an even more difficult situation on continent – as the European Union relies on Russia for around 40 per cent of its gas imports and has spent nearly €30bn on Kremin-backed natural gas since the invasion of Ukraine in February.

Germany has triggered the second stage of its emergency plans, that could lead eventually to its government confiscating supplies and distributing them, while Austria and Italy also weighing up gas plans.

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