Energy company profits on the rise
This revelation has cast further doubt over the energy firms’ claim that price rises have been the result of green levies intended to help the less well-off make their homes more energy efficient.
In 2011, profits from selling gas and electricity were around £30 per household. This rose to £53 last year, and Ofgem now estimates that they have increased again to £105 per household.
“There is some evidence of rising profit margins,” market regulator Ofgem said. “This rise has been due to a combination of higher prices and volumes rather than lower costs.”
The energy companies have hit back against the report, claiming that it does not represent their profit margins fairly.
Trade association Energy UK says:
"Ofgem's report sets out the earnings before tax paid for supply side and for generation. The figures do not take into account the costs of the huge investment the energy companies are making, the interest or the tax they are paying.”
The firms maintain that consumer price rises are the result of higher gas and electricity costs as well as companies’ environmental obligations under government policies such as the Energy Companies Obligation and the Feed-in Tariff.
Consumer advocacy groups argue that there is not enough competition in the market, a view supported within the Ofgem report: “Our analysis in 2011 showed that the way in which the whole retail market worked meant there was not as much competitive pressure on suppliers as there should be.”
The report also states that the average margin in generation made by the Big Six last year was 20% compared with 24% in 2011.
“Margins in generation are higher than for supply because the supply and generation parts of the suppliers’ businesses are very different,” the report stated.
“The generation part of a supplier’s business needs to invest significant sums of money over the long term in building new power stations. So a higher margin is needed to ensure the companies can afford this investment. The supply side of the business does not need to make such investments.”
Consumer watchdog group Which? is pressing Government to break up energy companies so there is a split between generation and supply, claiming this would increase competitiveness and drive down prices. In a letter sent to Chancellor George Osborne ahead of the Autumn Statement on December 5, Which? wrote:
“Wholesale costs are the biggest part of the eye-watering rises to energy bills that people have faced over the last ten years. The wholesale market must be made more competitive to help keep prices in check.”
