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British Gas owner plans to cap profits to cut energy bills

British Gas owner Centrica plans to voluntarily cap booming profits in an effort to cut household bills and defuse outrage over them.

The chief executive, Chris O’Shea, revealed in the Guardian that he is keen for Centrica to become the “first company” to sign up to new, renegotiated contracts with the government on its electricity generation, amid controversy over windfall gains.

As part of Liz Truss’s £150bn energy bills freeze, renewable and nuclear power generators will be asked to supply electricity below current market rates – but the new prime minister has refused to impose a windfall tax on them.

Ministers plan to “negotiate” with generators on older wind, solar and nuclear contracts, which have benefited from windfall gains as the price of gas has soared, to persuade them to switch to newer, less lucrative deals, which lock in lower prices in return for guaranteed long-term income.

As well as being the UK’s biggest supplier of gas and electricity to households via British Gas, Centrica is also a big generator via its 20% stake in Britain’s nuclear power stations.

O’Shea said Centrica is willing to switch the five nuclear plants to the new-style contracts. He said he was even prepared to draw up long-term contracts with the government for Centrica’s North Sea gas fields, 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. North Sea oil and gas extraction does not currently receive 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’re not in this business to maximise our profit this year,” he said.

Energy firms have supported the “contracts for difference” (CfD) proposals, which give investors certainty over the levels of returns they can receive, potentially years after the energy crisis has abated.

However, the Resolution Foundation has warned that the policy risked “delaying but locking in” windfall gains. There are concerns that the government negotiating team, led by the former head of the vaccines taskforce, Madelaine McTernan, is in a weak position as it will need to convince generators to forgo high short-term prices.

O’Shea declined to say what proportion of its profits he was prepared to relinquish or how much the company hopes to receive from government. He told the Guardian: “Sometimes if you go to the government and propose you take a lower price they look at you like there must be something else in it for you.

“We are obviously in this business to create value for all of our stakeholders, customers, country [and] colleagues. But it’s not about maximising this year’s profits; it’s about having a long-term sustainable business.

“We supply more than 8m homes and businesses in the UK with energy – if they can’t afford their energy, we don’t have a sustainable business. And so when you think about this holistically … if we put something like a CfD regime in place for existing assets then, God forbid, if this ever happens again and we see prices go where they go, there’s an automatic adjustment mechanism.”

O’Shea said the “risky” nature of commodity markets can hang over investments. “If you put a floor on the price that can be achieved, you eliminate a huge amount of the risks,” he added.

Centrica holds its 20% stake in Britain’s nuclear fleet through a joint venture with France’s EDF, which is also understood to be supportive of the proposals.

The scale of the windfall from surging gas prices was underlined in July when Centrica reported first-half operating profits of £1.3bn and handed £59m to shareholders. The company said it had seen an 11% gain in volumes of nuclear power generated in the first half of 2022. It said the price achieved for nuclear power had risen from £46.5 a megawatt hour in 2021 to £110.4/MWh.

The company posted a surge in half-year profits from the division containing its exploration and production, and nuclear operations – reaching £906m, up from £75m.

O’Shea said that alternative suggestions to cap wholesale gas prices could “distort the market massively and have perverse consequences”.

Asked if he was backing the CfD proposal to fend off a potential windfall tax, O’Shea responded: “A windfall tax by its nature is a one-off. It doesn’t fix the structure of the market. We’re trying to solve the same issue in a way that’s sustainable.”

Last month British Gas announced it will donate 10% of its profits to help its poorer customers manage rising gas and electricity bills for the “duration of the energy crisis”.


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