Britain’s biggest household energy supplier is poised to report its highest ever first-half profits thanks to a huge one-off boost from Ofgem increases to the energy price cap.
Centrica, the owner of British Gas, has signalled that the supplier’s interim profits will significantly exceed the previous record of £585 million set in 2010, because the regulator had increased the cap this year to compensate suppliers for setting it too low in the past.
Analysts at Investec estimate that British Gas profits could hit £857 million, while UBS has suggested £687 million, both of which would be a huge increase from the £98 million it made in the same period of 2022. Analysts believe the bumper British Gas results also could help to propel profits for Centrica as a group to an all-time high.
The bonanza risks triggering a political furore at a time when households are struggling with bills averaging more than £2,000 a year.
Centrica, headed by chief executive Chris O’Shea, is expected to shift responsibility for the British Gas result to Ofgem, which said yesterday that such big profits would be both “reasonable and expected”.
Ofgem sets the price cap on standard tariffs and thereby determines the majority of suppliers’ revenues. The regulator has admitted that as wholesale costs soared in 2021 and 2022 the cap was set too low, suppressing suppliers’ profits and rendering many of them lossmaking. It has included extra allowances in the cap this year to recompense suppliers. Results for EDF and ScottishPower are expected to show a similar boost.
Ofgem said: “After four years of loss-making, the energy sector is returning to profit with a large one-off boost relating to allowances made in the price cap to cover costs incurred in 2022. While many consumers will find high profits difficult to accept, no sector can survive for long losing money. These figures are reasonable and expected.”
Ofgem has warned suppliers they should not use the profit boost to pay dividends unless they have met new financial resilience rules. However, the cash-rich Centrica is believed to already meet Ofgem’s requirements.