British Gas profits soar 900% thanks to price cap allowance

British Gas has posted a record adjusted operating profit of £969 million for the first half of 2023, largely thanks to changes made to the price cap to allow the recovery of unexpected costs.

The figure is almost 900% higher than the same period in 2022 when it posted a £98 million profit.

In its half yearly results for 2023, British Gas parent company Centrica reported its overall profits more than doubled from £1.3 billion to £2.1 billion.

The company explained that around £500 million of British Gas’ bumper profits was mainly due to one-off factors relating to the default standard variable tariff (SVT) cap which would not be expected in a normal reporting period.

As wholesale energy costs saw huge increases from 2021 onwards, suppliers’ SVTs were cheaper than nearly all fixed price tariffs, resulting in more customers moving onto SVTs than forecast.

This resulted in suppliers having to purchase a portion of their electricity and gas at levels above the cap. Allowances to recover this cost were introduced into the price cap from April last year, with recovery continuing into H1 2023.

Centrica further explained: “In addition, commodity curves through 2022 showed lower prices in future periods, which meant suppliers were unable to match the commodity cost element of the price cap.

“This impact was particularly pronounced in Q4 2022, and recovery of this also continued into H1 2023. There were also some other less material adjustments.

“This £500 million of cost recovery in H1 2023 compares to approximately £250 million of negative impact from unexpected additional SVT demand in H1 2022.”

The company said without the changes to the cap, profit would have been less than half the reported number.

Centrica chief executive Chris O’Shea stressed the record British Gas profit was a “one off”, when speaking to journalists after the results were released.

He said: “We’ve said going forward that British Gas Energy will make on a normal basis about £150 to £250 million a year and the vast majority of that tends to be made in the first half.

“Sometimes you make a little bit more in the first half than you do in the full year and you lose a little bit in the second half. But no, we would not expect to see profits anywhere near this level in British Gas Energy, it really is a one off driven by the timing of recovery set by Ofgem.”

Meanwhile, Centrica has said its interim dividend is up 33% to 1.33p per share, and that it is extending its share buyback programme by £450 million.

Elsewhere the company has promised to double its customer support package to more than £100 million in total.

O’Shea added: “We recognise the ongoing pressure on households and we’ve increased the support we are providing our customers, we’ve doubled this support to £100 million since the start of the energy crisis. That’s more than all of our competitors combined.

“I’m very pleased with the performance of the business over the first half of the year and even when stripping out the benefits of one offs, such as Ofgem’s price cap recovery of prior period costs, we have shown Centrica to be a robust, sustainable business…we’ve succeeded in turning the ship around and now we are in a position to ramp up investment and push forward with our plan.”