Energy price cap - cap the profits

susansue

Energy company profit is the difference between the wholesale price they buy at and the retail price they charge us. They set this retail price.
So why do their profits rise with each increase in the cap? Surely profit should remain the same if the mark-up from wholesale to retail prices is kept the same? But no, they get away with using a different formula. It's blatant profiteering.
The energy companies profit margin is what should be capped.
And standing charge increases are a sneaky way of making even more profit.

What do you think?

Netexporter

I think you don't understand the energy market.

The profit margin on the SVT is already capped as it is set by Ofgem.

How much profit per customer do you think the suppliers make?

QrizB

susansue said:

What do you think?

I think this thread will last 3-4 pages before being closed. During those 3-4 pages, we'll get the usual suspects claiming that energy suppliers are making huge profits by pointing to the financial data of eg. BP and Shell, big petroleum companies who have zero presence in the UK domestic energy market.

MattMattMattUK

susansue said:

Energy company profit is the difference between the wholesale price they buy at and the retail price they charge us. They set this retail price.
So why do their profits rise with each increase in the cap? Surely profit should remain the same if the mark-up from wholesale to retail prices is kept the same? But no, they get away with using a different formula. It's blatant profiteering.
The energy companies profit margin is what should be capped.
And standing charge increases are a sneaky way of making even more profit.

What do you think?

I think you should probably go and read up on the energy providers before you make any more inaccurate statements. 

The margin for domestic energy suppliers is low, they make around 3%, last year that was about 2%, in 2022 they were forced to sell at around a 25% loss and historically they have made around 3.5% profit on the SVT. Energy suppliers do not set the retail price, at least for the SVT, Ofgem do, the market and pricing is regulated. The standing charge contributes about 1.5p to profit, the rest is handed over to the network operator, regional networks, the government, various social schemes foisted on the energy suppliers by the government etc. 

Energy suppliers make around £48 profit per household, per year, low margin, low profit per customer, it is just the scale that makes the numbers seem big. 

susansue

Netexporter
Correct. I don't understand the energy market. If the profit margin is capped as you say, why do profits soar each time the cap is increased? 
You say "How much profit per customer do you think the suppliers make" I have no idea, and don't see how that affects the wholesale/retail mark-up margin.

MattMattMattUK

susansue said:

Correct. I don't understand the energy market. If the profit margin is capped as you say, why do profits soar each time the cap is increased? 

They do not.

susansue said:

You say "How much profit per customer do you think the suppliers make" I have no idea, and don't see how that affects the wholesale/retail mark-up margin.

Profit is the difference between costs and sales, if you do not understand profit, markup and margin then you need to read up on those concepts first. 

susansue

QrizB 
Quote: I think this thread will last 3-4 pages before being closed. During those 3-4 pages, we'll get the usual suspects claiming that energy suppliers are making huge profits by pointing to the financial data of eg. BP and Shell, big petroleum companies who have zero presence in the UK domestic energy market.
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I can't agree. Look at the energy company profit tracker here. It contains some well known UK names and some dramatic increases.: https://www.endfuelpoverty.org.uk/news/energy-firm-profits-tracker/ 

susansue

So if profit is capped, is there evidence that energy companies profit does not track increases in the energy price cap? And how is https://www.endfuelpoverty.org.uk/news/energy-firm-profits-tracker/  explained away?

Spoonie_Turtle

susansue said:

Energy company profit is the difference between the wholesale price they buy at and the retail price they charge us. They set this retail price.
So why do their profits rise with each increase in the cap? Surely profit should remain the same if the mark-up from wholesale to retail prices is kept the same? But no, they get away with using a different formula. It's blatant profiteering.
The energy companies profit margin is what should be capped.
And standing charge increases are a sneaky way of making even more profit.

What do you think?

It's really really not.

Have a look at the (simplified) costs that are included in the price cap:
https://www.ofgem.gov.uk/energy-price-cap

And as already pointed out, suppliers' profits are capped already.

Hoenir

susansue said:

QrizB 
Quote: I think this thread will last 3-4 pages before being closed. During those 3-4 pages, we'll get the usual suspects claiming that energy suppliers are making huge profits by pointing to the financial data of eg. BP and Shell, big petroleum companies who have zero presence in the UK domestic energy market.
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I can't agree. Look at the energy company profit tracker here. It contains some well known UK names and some dramatic increases.: https://www.endfuelpoverty.org.uk/news/energy-firm-profits-tracker/ 

How good is your understanding of operating cash flow and balance sheets? Anyone can selectively pull a few numbers out of a 100 plus page annual set of published accounts. Takes far more training to be a financial analyst. Social media unfortunately is a sure fire way of being spoon fed misinformation that misleads. Resulting in endless pointless debates. 

Scot_39

susansue said:

Energy company profit is the difference between the wholesale price they buy at and the retail price they charge us. They set this retail price.
So why do their profits rise with each increase in the cap? Surely profit should remain the same if the mark-up from wholesale to retail prices is kept the same? But no, they get away with using a different formula. It's blatant profiteering.
The energy companies profit margin is what should be capped.
And standing charge increases are a sneaky way of making even more profit.

What do you think?

So many false assumptions it is hard to know where to begin.

There are far more things in the price - e.g. network costs, policy costs, debt special, prepay subsidy etc etc and of course VAT.

But even mainstream media produces absolute nonsense headlines these days on energy bills - just saw one claiming could save the full SC by signing up to a 2 yr fix once no SC tariffs returned - like over £650 - completely - at least in headline ignoring the increase in unit rates that would be introduced.  Unless that is you genuinely use zero units of gas and electric of course.

Suggest you might want to actually look at the breakdown of the cap - then go through line by line learning what each of those lines is - before making such observations

Start for instance with the recent cap changes letter

https://www.ofgem.gov.uk/sites/default/files/2024-11/Summary_of_Changes_to_Energy_Price_Cap_1_January_to_31_March_2025.pdf

As you will then see - wholesale costs are a small fraction of the total price - even after recent rises.

Suggest you look at the summary breakdown lines and then do a little bit of research onto each one of them - like the historic changes in them - since first cap came in in 2019 - and the reasons for it - and who that money atually goes to.

https://www.ofgem.gov.uk/energy-policy-and-regulation/policy-and-regulatory-programmes/energy-price-cap-default-tariff-policy/energy-price-cap-default-tariff-levels

And learn to differentiate between headlines re energy producers - and the businesses who supply domestic customers.

Those are not the domestic energy suppliers - and try to remember nearly 30 suppliers collapsed during the energy crisis - because they could not survive / operate profitably - under Ofgems pricing cap and business regulation.