Energy UK, which represents the interests of the big six firms, lambasted the report’s findings and asked the regulator to use “much more meaningful figures of cost of capital”.
“It’s extremely misleading to compare electricity generation margins as it depends on what fuel you are generating,” Angelos Anastasiou, utilities analyst at Whitman Howard, told City A.M. “While coal is seen as a dirty fuel, it is relatively cheap and quite profitable, whereas with gas generation you will make nothing. Renewable forms of energy can differ too. You may have higher margins to build the infrastructure but then have lower running costs, or vice versa.”
Energy policy is currently at the forefront of the political arena, with the companies blaming recent rises to customers’ bills on higher wholesale costs and government green policies. Prime Minister David Cameron has pledged to “roll back” green levies from energy bills, with an announcement expected in next week’s Autumn Statement.
“Ofgem’s…figures do not take into account the costs of the huge investment the energy companies are making,” said Energy UK.
According to the report, the average big six profit margin for the supply side of the business rose from 2.8 per cent in 2011 to 4.3 per cent in 2012.
But total profits fell from £3.9bn in 2011 to £3.7bn in 2012.
Npower called the report “already out of date” and said its UK power stations had made a £51m loss in 2013.
A government spokesperson said: “Profits are a matter for energy companies to justify to their customers and shareholders, but profits are needed if they are to continue to invest in Britain’s energy security and infrastructure.”