Record power prices driven by the soaring cost of gas as Russia chokes supply to Europe are presenting European utilities with an existential problem: despite selling electricity at record prices, they are running out of cash because of spiralling collateral requirements.

Finland has warned that the energy sector faces a potential “Lehman Brothers” moment if governments do not step in to provide emergency funding. Others are calling for a complete overhaul of the way power is traded.

Why are electricity generators short of cash?

Power generators like to de-risk their power sales to households and businesses by taking short positions in futures markets before selling the physical electricity. That way if power prices fall, any losses on the contract will be mitigated by gains from the short position, and if prices rise the additional profit made on the physical delivery should cover the cost of the short.