British Gas owner Centrica plans to voluntarily cap booming profits in a bid to cut household bills and defuse outrage over them, the Guardian can reveal.
Chief executive Chris O’Shea said he wanted Centrica to become the “first company” to sign new, renegotiated contracts with the government over its power generation, amid controversy over windfall gains.
As part of Liz Truss’ £150billion energy bill freeze, renewable and nuclear generators will be asked to supply electricity below current market rates – but the new Prime Minister has refused to impose an exceptional tax on them.
Ministers plan to ‘negotiate’ with producers on older wind, solar and nuclear contracts, which have enjoyed windfall gains as the price of gas has soared, to persuade them to switch to newer deals and less lucrative, which in turn guarantee lower prices. for guaranteed long-term income.
As well as being Britain’s largest supplier of gas and electricity to households through British Gas, Centrica is also a major producer through its 20% stake in Britain’s nuclear power plants.
O’Shea said Centrica is willing to move all five nuclear plants to new-type contracts. He even said he was ready to conclude long-term contracts with the government for the Centrica gas fields in the North Sea, which are not covered by the initiative and have already been subject to the windfall tax announced earlier this year by the then Chancellor, Rishi Sunak. . Oil and gas extraction in the North Sea currently receives no subsidies.
O’Shea said he had discussed the idea, backed by industry body Energy UK, with the government and talks are ongoing. “We are in this business for the long term. We are not in this business to maximize our profit this year,” he said.
Energy companies have backed proposals for “contracts for difference” (CfDs), which give investors certainty about the levels of return they can receive, potentially years after the energy crisis ends.
However, the Resolution Foundation warned the policy risked ‘delaying but locking in’ windfall gains. There are fears that the government’s negotiating team, led by the former head of the vaccine task force, Madelaine McTernan, is in a weak position as it will have to convince producers to give up high prices in the short term.
O’Shea declined to say how much of his profits he was willing to give up or how much the company hopes to receive from the government. He told the Guardian: “Sometimes if you go to the government and offer to take a lower price, they look at you as if there must be something else for you.
“We are obviously in this business to create value for all of our stakeholders, customers, countries [and] colleagues. But it’s not about maximizing profits this year; it’s about having a long-term sustainable business.
“We supply power to over 8 million homes and businesses in the UK. If they can’t afford to buy their energy, we don’t have a sustainable business. And so when you think about this holistically… if we put in place something like a CfD regime for existing assets, then God forbid, if that happens again and we see prices go where they’re going , there is an automatic adjustment mechanism.
O’Shea said the “risky” nature of commodity markets can weigh on investments. “If you put a floor on the price that can be reached, you eliminate a lot of the risk,” he added.
Centrica holds its 20% stake in Britain’s nuclear fleet through a joint venture with France’s EDF, which is also said to be in favor of the proposals.
The magnitude of the windfall from soaring gas prices was underscored in July when Centrica announced first-half operating profit of £1.3bn and returned £59m to shareholders. The company said it saw an 11% increase in nuclear power volumes generated in the first half of 2022. It said the price it got for nuclear power rose from £46.5 per megawatt hour in 2021 to £110.4 £/MWh.
The company recorded an increase in half-year profits from the division containing its exploration and production and nuclear businesses – reaching £906m, from £75m.
O’Shea said alternative suggestions for capping wholesale gas prices could “massively distort the market and have perverse consequences”.
When asked if he supported the CfD’s proposal to ward off a possible windfall tax, O’Shea replied, “A windfall tax, by its nature, is unique. It does not fix the structure of the market. We try to solve the same problem in a sustainable way.
Last month British Gas announced it would donate 10% of its profits to help its poorest customers manage rising gas and electricity bills for the “duration of the energy crisis”.