British Gas owner makes loss due to energy price cap

They say it caused a £300m reduction in profits, contributing to a total £848m loss for the year ending 31 December 2019.

The falling price of gas also hit the energy company hard due to their North Sea gas supply side business, plus there were outages at two non-operated nuclear plants to contend with.

Their preliminary report shows a net loss of 286,000 customers during 2019, although this is a reduction compared to 2019 and they have added consumer accounts during that time.

Credit: Piotr Swat/Shutterstock.com

Profits hit by cap

Centrica explicitly state in their report that the challenging environment of the energy market, including the UK default tariff cap, has affected their profits.

They estimate they took a £300m hit as a result of the energy price cap which was first introduced in January 2019 and has been revised several times since then.

Most recently, it was announced the default cap was to fall by another £17 from April 2020, meaning the cap levels have fallen by £92 in a year.

Centrica have been vocal critics of the default price cap in the past. They sought a judicial review about the implementation of the cap which they say left suppliers disproportionately out of pocket.

Then in February 2019, they announced they expected the cap to hit 2019 profits by around £300m - a prediction which has come to pass in these preliminary results.

Other factors

With the company posting a loss of £849m compared to a profit of £987m in the previous year, it isn't only the energy price cap that has impacted their financial situation.

Centrica also cite the falling price of gas which fell steadily from September 2018 all the way through to October 2019 before increasing slightly in the latest available figures for November 2019.

While the wholesale costs of gas falling might be good news for suppliers purchasing it for their customers, it's problematic for companies like Centrica who have holdings in the North Sea and have seen the value of those holdings fall as the wholesale gas prices fall.

Outages at Hunterston B and Dungeness B, nuclear power stations both operated by EDF Energy, also impacted the results.

Market share

Within the report, Centrica confirmed that British Gas experienced a net loss of 286,000 domestic energy customers, a 6% reduction year on year.

However, as Centrica offer various services under their branding, they have seen customer account holdings increase by 78,000 during 2019.

They state that the scale of UK domestic energy supply losses was significantly lower in 2019 than in 2018 and slowed between the first half of the year and the second. Yet we explain in our full review of British Gas that these customer losses are part of a long-term trend.

While they remain dominant in the gas supply market, their customer share has fallen from 55% in 2005 to 28% in the last figures available for Q3 2019.

Their dominance in the electricity market has historically been lower, and there have been more fluctuations in their customer share. Nevertheless, from a high of 25% in 2013, they have steadily declined to 19% in the most recent figures.

So, while British Gas remain the market leader, their energy supply customer base is shrinking, and their profits are suffering due to the default tariff price cap.

With OVO recently acquiring SSE and becoming the second largest energy supplier in the UK, it will be interesting to see how British Gas perform during 2020 and whether they continue to lose customers.