Utility Week

UTILITY Week 8th September 2017

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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Page 18 of 31

UTILITY WEEK | 8TH - 14TH SEPTEMBER 2017 | 19 This week Centrica margin high as Npower languishes Ofgem data shows aggregate big six profit margins at record high of 4.48 per cent in 2016 Centrica's pre-tax profit margin for domestic energy supply sat at 7.18 per cent in 2016, new data from Ofgem has revealed. The regulator's complete annual data for energy company profit margins showed the Brit- ish Gas owner recorded the high- est margin among the big six in 2016, making it the most profit- able large supplier for the second year in a row, despite a 0.38 per cent margin reduction compared with 2015. Ofgem's data also showed that the aggregate profit margin across all of the UK's largest energy suppliers rose to a record high of 4.48 per cent in 2016, with Eon, Scottish Power and SSE all exceeding this average. SSE's margin increased for the third year in a row and Eon achieved the biggest positive step change in margin compared with last year – from 4.52 to 6.95 per cent. Meanwhile, Npower and EDF reported losses of 6.26 per cent and 0.87 per cent respectively. In an interview with Utility Week, Beatrice Bigois, head of EDF Energy's UK retail business, said that the supplier is hopeful of recording a "very small" profit in 2017 (see p6) News of Centrica's strong positive margin is likely to spark new controversy over domestic energy bills. It comes just weeks aer the supplier announced a 12.5 per cent increase to the cost of electricity for customers on its standard variable tariff, claiming that rising network and policy costs could not be absorbed by the company. Ofgem is currently consulting on a partial market price cap to protect vulnerable consumers, but political pressure for more aggressive intervention is mounting. JG WATER Listed firms set to outperform in PR19 Listed water companies are set to perform better under the next price review than their privately- held peers, according to analysis by Macquarie, which ranks Sev- ern Trent and South West Water top out of 17 companies. The analysis, which models return on regulated equities and company finances under PR19, predicts that Severn Trent and South West Water will be able to maintain their dividends, but suggests the third listed com- pany, United Utilities, will have to cut its dividend by 10 per cent. Macquarie said: "It seems statistically significant that out of 17 water companies… the publicly listed water companies are all in the top half and are in first and second place… we believe the standard for govern- ance is higher for publicly listed companies than private ones. Governance could be an area for exploration for incentives by Ofwat in our view." ENERGY Centrica sells gas plants to Czech EPH Centrica has completed the sale of two combined-cycle gas tur- bine plants to the Czech utility company EPH. The disposal is part of the British Gas owner's pivot away from large-scale baseload generation and towards home services, distributed energy and flexible generation. The group announced the sale of the Langage and South Humber power stations last month for £318 million. The plants in Devon and Lin- colnshire have a total capacity of 2.3GW. ENERGY DNOs slam think tank's profit analysis Distribution network operators have been accused of making annual average profits of 32 per cent during the first half of this decade, according to an analysis that has been branded as "deeply flawed" by the ENA. The Energy and Climate Infor- mation Unit says the six DNOs have made a collective final profit of £10.7 billion on total revenues of £33.5 billion between 2010 and 2015. This represents £27 per home every year. The ENA said the ECIU's analysis was based on "outdated and incomplete data" and a "fundamentally flawed and incorrect methodology". It said that despite "sig- nificant" planned investment between 2006 and 2017, network distribution costs have fallen by 17 per cent, and that DNOs had been cleared by the Competition and Markets Authority of making excessive profits. Domestic energy supply pays off for Centrica Stock watch SSE SHARE PRICE, FIVE DAY Nov 16 Jan 17 Mar 17 May 17 Sep 17 Jul 17 SSE SHARE PRICE, FULL YEAR SSE shares rallied this week as it issued a €600 million green bond – the largest from any company based in the UK. The supplier will use the proceeds to refinance recently- built or under-construction windfarms. It said it had set its lowest coupon rate for a senior bond – 0.875 per cent – because of "significant demand". SSE's shares rose from 1,398 to 1,437 pence last week, slipping back slightly to 1,432 pence by the close of Monday 4 September. 1440 1600 1430 1550 1420 1500 1410 1450 1400 1400 1390 1350 31 Aug 1 Sep 4 Sep 5 Sep Finance & Investment

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