Can someone explain again - how are energy companies make so much profit?
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So Centrica made 3.3bn - I don't understand. If they are paying so much for the gas that in turn is crucifying many of us - how are all the energy companies making so much profit?
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The companies making billions are the mining/producing companies(worldwide companies) The suppliers of energy are regulated in the UK and allowed to make a maximum of 2% profit.
Energy Used Electricity only. Hoping to get down to 6000 kWh a year. 2022 worked out at 6234 kWh a year in a 4/5 bedroom detached house EPC high B. Designed not retro-fitted ASHP Mitsubishi Ecodan, under floor heating ground floor, radiators 1st floor. Multi-fuel burner in lounge.
Dyslexia sufferer don't be too harsh if I get things a bit topsy turdy.
Energy suppliers have a 2% profit worked into the cap rates for the SVT, they can a higher profit for example from fixed tariffs or like Octopus from licensing their billing system to other suppliers.
Reality is that many if not most suppliers have made losses over the last two years.
Shell as energy supplier might leave the market because they are making losses for the last years, evem so the Shell as producer earns money.
They producer will sell the energy at market price, they will not sell it cheaper to suppliers in their group.
This is been explained every month several times,
Clearly, the Uk Government could choose to impose, say, a 95% tax on a producer’s profits. The effect of this would be that producers would no longer invest in the UK as it would deemed to be an unprofitable venture.
They drill for gas and it costs £10 to get out of the ground.
The market buys that from them and other suppliers for £20. Profit £10.
There's an invasion and a major supplier of that product (Russia) can no longer sell to as many customers.
The market needs to provide the product, there is less of it, market price goes up to £40.
Centrica now make £30 profit by doing nothing as it still costs £10 to get it out of the ground.
British Gas (part of Centrica) were buying it at £20 and selling to domestic customers. They now have to pay £40 for the same amount and this is passed to customers.
Tesco are mostly UK based, but I believe they also have an an international element. They doubled their profits, although trading is difficult.
Tesco are the UKs third largest company.
The other thing about free market economies is that eventually, prices should settle but these days once a price has gone up - it never truly comes down again whatever the market pressures.
if you want to buy oil or gas for tomorrow/soon you can get it cheaper and then make more of a profit (which is the model lots of companies relied on and why they went bust or really struggled when prices first started to go crazy). if you want to buy your energy for in 12 months or longer (fix the price now so you know what you can sell at) then it will cost whatever the price is but that normally means your limited to the 2% because thats how ofgem works it out. you could have made lots of cash when the problems happened if you had bought below the new cap rates (the same as anyone who was lucky enough to start a long fix this time last year).
playing the market like that is how traditionally the 'profit flowed down the line' because it let energy suppliers offer cheap fixes below the cap rate. its just not possible right now with the cap being below the market price for so long (it might be in the next 6-12 months if the forecasts are right and prices drop below the cap).
the other part is opec. which is a core of 13 contries (then russia who is or isnt depending on if the rest do what they want) who get together and decide what price the oil they export should be sold at.
they can keep the price high by producing less (to a point as you can't completely stop) and even tho they dont control 100% of the market because theres not much alternative that inflates the prices of the rest. supply and demand.
you might find this interesting https://en.wikipedia.org/wiki/2020_Russia%E2%80%93Saudi_Arabia_oil_price_war
It's amazing how those with a can-do attitude and willingness to 'pitch in and work' get all the luck, isn't it?
Please consider buying some pet food and giving it to your local food bank collection or animal charity. Animals aren't to blame for the cost of living crisis.
You might argue we should have a different market mechanism where they only ever sell at cost plus a sensible profit, so then each electricity generator would charge a different price and the average price paid would be lower. But that is not the market we have. So blame those that set the way the market works, not those that whether they like it or not, profit from the higher prices.