As millions of households continue to grapple with paying their energy bills, British Gas’ announcement of record half-year profits has sparked a wave of anger.
After price cap increases enabled British Gas to generate more revenue from household bills, their profits surged to £969 million. Ofgem, the regulator, attributed the remarkable results to these specific changes, considering them a “one-off” occurrence. However, campaigners viewed the profits as evidence of Britain’s flawed energy system, further highlighting its inadequacies.
“The profits posted will be greeted with disbelief by those struggling through the crisis,” stated coordinator of the End Fuel Poverty Coalition, Simon Francis. Additionally, he emphasised that “energy firms are operating on a playing field set by the government”.
Recovery of costs
Centrica, the owner of British Gas, stressed the significance of comprehending that the changes represented a mere “recovery of costs incurred in the past.”
Approximately £500 million, nearly half of British Gas’s profits, resulted from alterations to the price cap implemented by the energy regulator. In contrast, during the corresponding period the previous year, the company reported a profit of £98 million.
Two other prominent energy suppliers also disclosed substantial increases in their profits
Scottish Power experienced a remarkable transformation, transitioning from a significant loss in the previous year to recording profits of £576 million in its retail division. Meanwhile, France’s EDF witnessed a substantial surge in earnings for its British operations, encompassing nuclear and wind power generation, with profits jumping to £1.95 billion from £740 million in the previous year.
Energy regulator’s decision to increase the amount suppliers can recover from household bills sees a rise in profits
However, Ofgem clarified that the bumper profits witnessed in the first half of the year would be a singular occurrence. Energy companies are recuperating “significant costs” attributed to the Covid pandemic and Russia’s invasion of Ukraine. Consequently, Ofgem expects profits to “fall back significantly” after this period of recovery.
In 2022, suppliers faced a shortfall for each dual-fuel customer due to the cap. However, in the first half of 2023, the higher cap provided them with a benefit of approximately £100 per customer.
To protect households from the full cap increase, the government’s energy price guarantee was in effect from October to June, capping typical annual bills at £2,500.
Ofgem acknowledged that bill payers and taxpayers, through government subsidies, supported the energy sector and its customers amid rising prices and escalating costs. In response, Ofgem emphasised that firms should only pay dividends to shareholders if they are financially robust.
Centrica reported underlying operating profits of £2.1 billion for the initial six months of the year, a significant increase from £1.3 billion the previous year. The company has proposed a 33% hike in dividends and a £450 million extension of share buybacks.
Despite energy prices not reaching the levels observed last year, substantial profits have been made from oil and gas
The invasion of Ukraine by Russia in 2022 resulted in a surge in oil and gas prices, leading energy firms to achieve record profits.
During the April-to-June period, oil and gas giant Shell reported a decline in profits to $5 billion (£3.9 billion), which was partly attributed to the drop in prices.
Additionally, Shell mentioned that it had experienced reduced sales of oil and gas, as well as lower profits from refining activities.
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