Energy price cap - cap the profits

EssexHebridean

susansue said:

Folks here still seem to be denying that energy company profits have increased during the energy crisis. Please explain this away. 

"The original plan was for this support to be offset partly by levies on energy producers. Initially, a windfall tax on oil and gas production profits was introduced at 25%, effective from 26 May 2022 until 31 December 2025.

After the mini-budget fiasco in September 2022, the new Chancellor of the Exchequer, Jeremy Hunt, was determined to reduce borrowing and increased the energy profits levy to 35%. He also extended the levy by three years and introduced the electricity generator levy with a rate of 45%, among other policies (HM Treasury, 2022)."

Source: https://www.economicsobservatory.com/levies-on-energy-profits-can-they-solve-the-uks-cost-of-living-crisis

That is talking about energy producers, and generators. Your post was talking about suppliers. The section you have quoted could not make that more clear - I have "bolded" the relevant references above for you. I strongly suggest you listen to the podcast I mentioned - it really will help you to understand the differences and have a better base of knowledge on which to make informed comments. 

Exodi

Another day, another thread mixing up energy suppliers and energy producers.

I don't know why people continue replying in this thread when it is apparent the OP is not properly reading the responses - numerous times this distinction has been pointed out, yet OP still comes back with:

susansue said:

Folks here still seem to be denying that energy company profits have increased during the energy crisis. Please explain this away. 

"The original plan was for this support to be offset partly by levies on energy producers. Initially, a windfall tax on oil and gas production profits was introduced at 25%, effective from 26 May 2022 until 31 December 2025."

This comment is (unfortunately) spot on.

QrizB said:

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.

EssexHebridean

Exodi said:

Another day, another thread mixing up energy suppliers and energy producers.

I don't know why people continue replying in this thread when it is apparent the OP is not properly reading the responses - numerous times this distinction has been pointed out, yet OP still comes back with:
<snip>

Because as much as anything else, this forum is about education. 

TheSpectator

EssexHebridean said:

Exodi said:

Another day, another thread mixing up energy suppliers and energy producers.

I don't know why people continue replying in this thread when it is apparent the OP is not properly reading the responses - numerous times this distinction has been pointed out, yet OP still comes back with:
<snip>

Because as much as anything else, this forum is about education. 

It should be but you can't educate those that stick their fingers in their ears.

the_lunatic_is_in_my_head

MattMattMattUK said: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. 

I think you are in the know enough to be aware this statement is omitting information basically making it untrue.

The SC does indeed include a profit element in it's calculation but it's 1.9% which is £5.60 a year* 

In regards to the rest "being handed over" 45% is for operating costs* (billing, sales, IT, etc), which whilst it's intended to cover set running costs rather than being profit it isn't as if all the money bar 1.5pence comes in, goes straight back out on things foisted upon the supply companies. 

*At least of Jan 2024, if that has changed since my apologies   

https://blog.moneysavingexpert.com/2023/07/martin-lewis--why-are-energy-standing-charges-so-high--what-can-/

MattMattMattUK said:in 2022 they were forced to sell at around a 25% loss 

Are you referring to SOLR where they were compensated for those costs via the SC or are you referring to them having to purchase at higher costs than the cap allowed in which case isn't the cap designed to be swings and roundabouts? 

Scot_39

One of the reasons the cap was changed to 3m was to track price rises.

Because suppliers with too low a percentage price hedging were driven into debt almost as soon as wholesale prices started to rise - which gathered pace summer into late 2021 early 22  - summer 22 cap was c60% higher,  Oct 22 80% higher, Jan 23 20% higher in lagged Ofgem timing.  The suppliers were paying higher rates in the earlier averaging periods.

Supplier failure and SoLR was kicking in from 2021 but accelerated to larger startups - one so large - Bulb with over 1.5m customers - it was govt administered from Nov 21 for over a year - as a direct result of lagged cap pricing model and rising unhedged costs meant suppliers having to buy above cap allowed wholesale rates for some energy supplied.

Gas had reached £2.50 to £3.00 per therm on month ahead supply by Autumn 2021 cf just  c 50-60p 6m earlier. 

And that was a year before a prolonged gas spike in autumn 2022 to nearer £6 per therm fed into the non epg base Ofgem calculated caps of well over £4000 in Q1 2023. 

Bulb, according to blog post by Octopus, were very low hedged with predominantly svt customers not fixed deals on their books - with hedging to Dec 21 not even covering their supply to next cap in spring 22 when failed.

https://octopus.energy/blog/the-price-cap-is-not-responsible-for-the-demise-of-energy-companies/

Ofgem , their low price challanger low financial reserves and lack of sufficient hedging requirement so no resillience to price shock - driven by their switch to save ethos - to blame as much as the 6m lag cap costs in a crisis.
 

born_again

susansue said:

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.

Can you provide some figures to show the increase in profits?

Also these companies may pre buy at a fixed price rather than the spot wholesale price.

Which was the reason why 20+ energy companies went to the wall, as they failed to predict the energy price increases.

Scot_39

wrf12345 said:

What we do know is that the poor old consumer pays 23p for energy and the retailers are buying it for 10p, where all that money disappears to is another matter.

The breakdown is published every cap. 

I suggest you make the effort to read it and stop cherry picking pointless figures.

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

And for some of those lines further background in Apr review of sone of this year's rises

https://www.ofgem.gov.uk/sites/default/files/2024-02/Default Tariff Cap Letter - 1 April 2024 .pdf

Your 10p might just be the wholesale component - it is not suplliers total external - e.g. network / govt imposed - policy, vat, debt special, prepay levelisation etc etc - costs.

 
Do you walk around Tescos thinking  that £1 cake or can of beans etc only cost 40p for buying in bulk at the factory gate before tax.

Before their transport, building and staff costs - and in case of the cake 20% vat added.

Or have you tried driving to say Heinz factory maybe 100s of miles away and asked them to sell you just 1 can or a 4 pack.  And seen the price then added your time and transport costs.

Or even compared it to you corner shop without the benefit of scaled savings.

the_lunatic_is_in_my_head

Scot_39 said:

One of the reasons the cap was changed to 3m was to track price rises.

Because suppliers with too low a percentage price hedging were driven into debt almost as soon as wholesale prices started to rise - which gathered pace summer into late 2021 early 22  - summer 22 cap was c60% higher,  Oct 22 80% higher, Jan 23 20% higher in lagged Ofgem timing.  The suppliers were paying higher rates in the earlier averaging periods.

From what I can see the price of gas was 3.35 USD in Oct 2019 and started to fall, bottoming out at 2.01 USD in April 2020 then climbing back up to 3.67 USD by Oct 2020 but the price cap only fell 7%.

Now granted it the cap fell a further 7% in Winter 2020/21 when really it should have gone up.

Profits at British Gas Energy seem to be:

2019: 117m
2020: 82m
2021: 118m
2022: 72m
2023: 751m 

Whilst there is two years down, well I'm pretty sure the global effects of Covid, wars and everything else badly affected many ordinary people, such is life, I wouldn't turn my nose up at over a billion quid since 2019.

That's not to suggest they are profiteering, I understand the volume of customers required to achieve this, but it doesn't seem like they were at breaking point at any time since the price cap came about?  

Scot_39

And as above figures - even some of those that survived were making big losses.

And obviuosly the c29 failures making unsustainable losses.