British households are at risk of receiving higher energy bills this winter due to a row between the Government and the owners of British Gas over one of the country’s key fuel storage hubs, The Mail on Sunday understands.
Energy group Centrica runs the Rough storage facility in the North Sea, 18 miles off the coast of East Yorkshire.
It provides half of the UK’s storage capacity for natural gas, enough to power the energy grid for up to six days. But there are fears that the clash between the company and ministers could leave Britain without sufficient reserves for this winter.
The firm usually begins filling Rough with gas in early April in preparation for colder months.
But recent data shows Centrica has yet to begin injecting gas into the facility, giving rise to fears that by winter there may not be enough to meet the UK’s needs.
In that case, Britain would be forced to pay for imported energy to power the electricity grid. That would leave households exposed to fluctuating natural gas prices on international markets and potentially higher bills. It could also push up costs and increase uncertainty for industry, including the UK’s beleaguered steel sector.
Stalemate: Centrica chief executive Chris O’Shea pictured at the Rough site in the North Sea
The decision not to begin refilling Rough stems from a dispute between Centrica and the Government over the facility. The company says losses are unsustainable unless the Government agrees to a price-smoothing mechanism.
Centrica wants to invest £2 billion to expand Rough, which is ageing and unprofitable, and allow it to store hydrogen as well as methane, quadrupling its capacity.
In return, chief executive Chris O’Shea wants the Government to introduce what is known as a ‘cap and floor’ price system to make the site financially viable.
He argues this would provide good value for the country, estimating that if Rough had been at full capacity over the energy crisis, it would have saved UK consumers more than £5 billion over two years.
Cap and floor models operate by setting a minimum price at which energy is purchased. If the market price falls below this threshold, the Government tops it up with a subsidy. But profits are also capped, with any excess being used to reduce the cost of energy for households. The effect is to smooth out volatility in energy prices.
Without this model, Centrica has argued that Rough will be unsustainable. The company previously estimated the site would cost it between £50 million and £100 million this year.
‘The company can’t sustain a loss-making asset without this,’ said a source close to Centrica.
The source added that if the site was not refilled now, it would be ‘very, very difficult’ for the UK’s energy storage network to be ready for the winter months. If a deal cannot be reached, Centrica may close down Rough entirely.
The site was shut in 2017 when the Government refused it support. It was partially reopened in 2022 at the request of the Government when Russia’s invasion of Ukraine caused global energy prices and household energy bills to spike.
Another rise in bills this winter would come at a difficult time for households already struggling with mounting energy costs. The Ofgem price cap was raised by £111 earlier this month, taking the average energy bill to £1,849 a year.
‘With gas prices still volatile now is not the time to be gambling with our energy security,’ said Simon Francis of the End Fuel Poverty Coalition. ‘It is households who will suffer this winter if prices increase and supplies run low.’
Centrica said: ‘We don’t yet have the regulatory model we need to unlock the £2 billion investment, but we said in February we’re having constructive conversations at the highest levels of Government. We have no formal update on the future of Rough at this time. It is our intention to update on our plans in the coming months.’
