Energy suppliers could bank £1.74bn profit in next 12 months

Household energy suppliers could rack up £1.74bn in profits over the next 12 months from customers’ energy bills.

Over the previous six years, suppliers have seen the amount of profit they are allowed to make every year on the average customer on the variable tariff surge from £27 in spring 2017 to a high of £130 in early 2023. The figure currently sits at £60 per customer. [1]

With energy bills expected to remain close to current levels, the energy firms are set to continue to profit from so-called EBIT and headroom allowances in the price cap. [2]

The figures and predictions exclude any profits which firms may also make through Ofgem decisions relating to Covid and Ukraine allowances, which contributed to the recently announced high profits for British Gas and Scottish Power.

The figures come from the first Warm This Winter Tariff Watch report, produced in partnership with Future Energy Associates (FEA). The study has revealed the secret data behind Britain’s broken energy system. Campaigners plan to run the report quarterly as the energy crisis continues.

While energy prices are subject to change and customers should exercise extreme caution when thinking about switching and fixing, FEA experts forecast that there are some deals worth looking at for some households.

For example, from 1 July, some one year fixed price tariffs with a low exit fee (below £80) and unit charges of 6.5 p/kwh for gas (gas standing charge 29 p/day) and 30p/kwh for electric (electric standing charge 52 p/day) might be worth some high-use energy users considering switching to. [3]

The FEA experts predict that the current best variable deal could be with two different suppliers, Home Energy for gas and Fuse Energy for electricity which would save £93 a year for direct debit households when compared to the Ofgem Price Cap. [4]

Throughout the first few months of 2023 there were just 5 fixed tariffs available to small sections of the market. So far in July alone, this number has doubled, with 10 fixed tariffs newly available on the market.

In April 2023 there were 26 energy suppliers offering customers tariffs, which increased to 29 in July 2023.

Simon Francis, coordinator of the End Fuel Poverty Coalition, which is part of the Warm This Winter campaign, commented:

“This report shines a light on the murky depths of Britain’s broken energy system. Without fundamental overhaul of the energy grid and energy tariffs, households will continue to lose out while suppliers will profit.

“Energy supplier profits predicted for the next 12 months could easily cover the cost of a ‘help to repay’ energy debt scheme and leave quarter of a billion pounds left over.

“But in addition to network reform and immediate support, we also need to see urgent and sustained action to reduce our reliance on high levels of energy consumption, such as improving the energy efficiency of homes, driving an increase in cheap renewables and a move away from the fossil fuel profiteers of the past.”

Tessa Khan, Director of Uplift which is part of the Warm This Winter campaign, said:

“The government seems to think the energy crisis has gone away, but for millions of households this winter will be as hard as the last. For energy companies to be pocketing this money, when bills are still twice what they were and so many people are being pushed into energy debt, is completely unacceptable.

“People will rightly ask what this government has done over the past year and a half to fix Britain’s broken energy system and lower bills for good. Instead of looking after the bottom line of the big energy companies, it needs to help people save money with more support for insulation and get on with ramping up cheaper renewables. That’s the only way we’re going to see permanently lower energy bills.”

Dylan Johnson from Future Energy Associates added:

“Our report reveals that the retail energy market is experiencing swift changes: falling wholesale prices are influencing retail costs, more fixed tariffs are available, and new suppliers are entering with innovative tariffs. Yet, questions persist over the speed of these changes, supplier profiteering, and regulator’s role in promoting competitiveness. The emergence of competitive single-fuel deals, while exciting, may pose risks to households less vigilant of tariff prices.”

Another injustice highlighted in the Warm This Winter Tariff Watch report are regional variations in the cost of energy. The figures shine a light on those areas of the country who are losing out because of regional inequalities at the hands of suppliers and Distribution Network Operators (DNOs). On the standard variable tariff:

• Electricity: The average standing charge is 56.85 p/day (pence per day), and the average unit rate is 32.1 p/kwh (pence per kilowatt hour). Manweb, which covers Merseyside, North Wales and parts of Cheshire, has the highest standing charge for electricity at 65.8 p/day, while London has the lowest at 41.9 p/day. Seeboard (South East) had the highest unit rate at 33.2 p/kWh, and Yorkshire the lowest at 31.1 p/kWh.

• Gas: The average standing charge is 33.5 p/day, and the average unit rate fell by 27.7%. For gas, Scottish Power and Scottish Hydro have the highest standing charges of at 33.9 p/day (£124/year). For unit rates, Swalec (South Wales) is the most expensive region with average unit rates of 7.73p/kWh and East Midlands is the cheapest gas region with unit rates of 7.34p/kWh.

Further data on the impact of standing charges will be published in future Warm This Winter Tariff Watch reports, but overall electricity standing charges remained unchanged from April to July. There was evidence of some early moves from the likes of Fuse Energy to compete on electrical standing charges, but others such as Outfox the Market raised standing charges.

For the gas standing charges, there were no changes from April to July in any of the regions, it remained constant at 29.11 p/day. This is significant as households in July, August and September will still be paying record high standing charges.

Bethan Sayed from Climate Cymru commented:

“Regional variations in energy prices are one of the most unjust parts of Britain’s broken energy system and this report shows wild variations in cost from region to region. These figures shine a clear light on those areas of the country who are losing out. It is time for Ofgem to step in and investigate these discrepancies and provide more transparency on why these differences exist.”