If you are a British Gas customer, you may have been shocked to learn that the company made record profits of almost £1 billion in the first half of 2023. This is an increase of 889% compared to the same period last year, when the company made only £98 million.
How did British Gas manage to make such a huge profit while customers struggled with high energy bills, rising inflation, and the aftermath of the pandemic? And what does this mean for the future of the energy market and your energy bills?
In this blog post, we will explain how British Gas made its record profits, why it is not as simple as it seems, and what you can do to save money on your energy bills.
How did British Gas make its record profits?
According to Centrica, the parent company of British Gas, the main reason for the record profits was not due to any trading windfall from high energy prices, but a reduction in debt-related costs.
This is because of a change in the way that Ofgem, the energy regulator, sets the price cap for standard variable tariffs (SVTs), which are the default tariffs that customers are put on if they do not switch to a cheaper deal.
The price cap is designed to protect customers from being overcharged by energy suppliers, and it is updated every six months based on various factors, such as wholesale energy prices, network costs, and policy costs.
One of these factors is an allowance for bad debt, which is the amount of money that suppliers cannot recover from customers who do not pay their bills. This allowance is ultimately passed on to all customers through their energy bills.
In the first half of 2023, Ofgem increased the bad debt allowance by £500 million, which meant that suppliers could charge more to customers to cover their losses. However, this also meant that suppliers could reduce their own bad debt costs by writing off some of their unpaid bills.
This is what British Gas did. It wrote off some of its bad debt costs, which reduced its operating expenses by £500 million. This boosted its underlying earnings by 889%, from £98 million to £969 million.
Why is this not as simple as it seems?
While it may seem unfair that British Gas made record profits by writing off its bad debt costs, it is not as simple as it seems.
First of all, British Gas did not benefit from any increase in wholesale energy prices, which are the prices that suppliers pay to buy gas and electricity in the market. In fact, wholesale energy prices have soared in recent months due to various factors, such as global demand recovery, supply disruptions, and geopolitical tensions.
This means that British Gas actually faced higher costs to buy gas and electricity for its customers. However, it could not pass on these costs to its SVT customers because of the price cap. This squeezed its profit margins and reduced its competitiveness.
Secondly, British Gas did not benefit from any increase in customer numbers or loyalty. In fact, British Gas lost 114,000 customers in the first half of 2023, as more customers switched to cheaper deals or other suppliers. This reduced its market share and revenue.
Thirdly, British Gas did not benefit from any increase in customer satisfaction or service quality. In fact, British Gas faced several challenges in delivering its services to its customers, such as staff shortages, industrial action, and technical issues. This affected its reputation and performance.
Therefore, while British Gas made record profits in the first half of 2023, it was not due to any increase in value or benefit for its customers. It was mainly due to a one-off accounting adjustment that allowed it to write off some of its bad debt costs.
What can you do to save money on your energy bills?
If you are a British Gas customer or any other SVT customer, you may be wondering what you can do to save money on your energy bills.
The best thing you can do is to switch to renewable, clean, green energy by installing solar panels on your roof or in your garden. This will save you about 70% on your energy bills, lower your carbon footprint (always a good thing) and increase the value of your home by between 4% – 14% depending on the location you live in, so it’s a win – win for you, the environment and the planet.
If you are interested in switching to renewable energy from solar panels, or if you have any questions about solar panels, please contact us today on 01268 928 690 or click on the ‘Enquire Now‘ button below. We are NXTGEN Energy, a leading solar energy installer in the UK, we can help you with free advice and a free no-obligation quote and design service on whether solar panels are the right solution for you to combat your high energy bills.
Frequently Asked Questions about British Gas Profits
British Gas made record profits mainly by writing off some of its bad debt costs, which reduced its operating expenses by £500 million. This was due to a change in the way that Ofgem sets the price cap for standard variable tariffs, which increased the allowance for bad debt by £500 million.
No, British Gas did not benefit from any of these factors. In fact, British Gas faced higher costs to buy gas and electricity in the market, lost 114,000 customers to other suppliers or cheaper deals, and faced several challenges in delivering its services.
The best thing you can do is to switch to renewable, clean, green energy by installing solar panels on your roof. This will save you about 70% on your energy bills, lower your carbon footprint (always a good thing) and increase the value of your home by between 4% – 14% depending on the location you live in, so it’s a win – win for you and the environment.
You can contact us by phone, email, or online. We are NXTGEN Energy, a leading nationwide solar energy installer in the UK. We can help you find the solar panel system for your home and help you with free advice and a free no-obligation quote and design service, so you can switch to solar power hassle-free.
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If you are a British Gas customer, you may have been shocked to learn that the company made record profits of almost £1 billion in the first half of 2023. This is an increase of 889% compared to the same period last year, when the company made only £98 million. How did British Gas manage… Read more: How British Gas Made Record Profits While Customers Struggled With High Energy Bills