(Bloomberg) -- The UK is opening applications for as much as £40 billion ($45 billion) of funding guarantees to energy traders to stave off a worsening liquidity crisis.

Volatile European energy-market prices mean companies need to tie up huge amounts of capital to insure their trades, which shrinks the number of firms that can afford to be active in the market. Efforts to improve trading conditions are already underway in other countries, as well as by the European Securities and Markets Authority.

The Energy Markets Financing Scheme will help firms facing temporary short-term problems and allow commercial banks to provide larger credit lines to approved companies. The Treasury will reimburse banks owed money by firms that can’t pay, with the Bank of England acting as an agent.

The energy-market volatility in the wake of Russia’s invasion of Ukraine “has resulted in a number of energy firms facing extraordinary liquidity requirements,” BOE Governor Andrew Bailey said in a statement. “This scheme will provide short-term financial support for these firms so they can weather this period, while also supporting the wider resilience of energy markets in the UK.”

Read More: UK Sets Up £40 Billion Fund for Energy Traders as Markets Strain

ESMA will allow bank guarantees, in the form of letters of credit, to ease the strain of margin calls, the markets watchdog said on Friday. Countries including Germany, Sweden and Finland have also allocated billions to help ease the cash crunch for energy traders navigating the turbulent markets.

About 30 energy suppliers have gone bust in the UK since late last year as high market prices combined with regulator Ofgem’s price cap meant they had to sell at a loss to customers, uut also because they didn’t have the credit lines to keep trading. The new program is primarily designed for large household and business energy suppliers, as well as gas shippers and power generators.

Applicants to the UK program must have good credit quality and hold, or have an entity that holds, a license from Ofgem. They’ll need to demonstrate that they face “large liquidity needs” from margin calls as they hedge their price risk, according to Monday’s statement. The state’s bill for the program will heavily depend on the size and number of claims it faces from banks.

Strict Requirements

State-owned firms, companies owned by financial institutions, hedge funds and commodity trading houses won’t be eligible. Companies have three months to apply and will be available to benefit from a guarantee for a further 12 months. Firms using the funding will have to comply with policy conditions such as restrictions on use of funds, executive pay and capital distributions.

All participating energy firms will also have to provide “proportionate climate-related financial information” to the Treasury that’s in line with the Taskforce on Climate-related Financial Disclosures, according to the Bank of England. That includes things like the company’s approach to net-zero targets and emissions-reduction plans. (TCFD is chaired by Michael Bloomberg, the founder of Bloomberg News parent Bloomberg LP.)

(Updates with context in sixth paragraph, climate-disclosure requirements in final paragraph)

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