Centrica, the company that owns British gas, has posted record profits of £3.3bn for 2022, more than tripling its results in 2021. The company also announced it will pay a dividend to shareholders of more than £200m, and will spend a further £300m on share buybacks. With the cost of living crisis deepening, and following the prepayment meter scandal, the “monster” results have prompted outrage. That anger is more than justified.
British Gas is, of course, hardly the only energy company announcing staggering windfalls. In recent weeks, Shell reported profits of over £32bn for 2022, while BP declared £23bn for the year. As with British Gas, historic profits have been translated into spectacular rewards for shareholders. BP, for instance, announced £11.8bn of shareholder payouts, over 14 times as much as it invested in “low carbon” activities. This is how the energy crisis, climate emergency and inequality intersect and intensify. As household bills soar, the energy companies are using surging profits to increase shareholder payouts and double down on fossil fuel production.
The profits of the energy sector are inseparable from soaring wholesale gas prices since Putin’s invasion of Ukraine. However, looking beneath the bonnet of Centrica reveals three areas where exorbitant profits are being made: its commodity trading segment, where profits grew 20-fold to £1.4bn; the UK’s woefully under-supplied gas storage sector, where profits more than quadrupled to £339m; and energy generation, where Centrica made a phenomenal 60% margin, thanks in large part to its stake in EDF UK’s nuclear fleet.
Higher bills also feed their way into rising profits. Remarkably, Centrica’s UK electricity supply segment produced its largest profit since 2018, despite the squeeze from massively higher wholesale costs. While this did not contribute significantly to overall profits, the lesson is clear: even suppliers that are comfortably cushioned by colossal profits elsewhere in the business will not shield customers from the energy crisis.
Given the public fury, how do the energy companies keep getting away with it? Why has such an obviously “broken” energy system not been reformed? The answer: despite appearances, it is not broken. By transferring and concentrating wealth upwards it is operating exactly as designed.
This is because the rules that govern the modern corporation – and the financial markets that discipline them – force the energy companies to operate in only one way. Their fundamental goal is not the delivery of secure, affordable, clean energy. Instead, it is the maximisation of shareholder wealth by delivering rising share prices and generous payouts. This is the root of the issue: the purpose of our privatised, for-profit energy system does not align – by design – with the needs of people and planet.
If the crisis is systemic, its resolution requires structural transformation. Given that external shocks are at the root of the energy sector’s enormous profits, a deepening and extension of the windfall tax is a clear and urgent necessity. However, this does not resolve the dynamic that is driving the crisis: the generation and supply of power by privately owned corporations legally required to maximise shareholder wealth.
Given this, the most effective solution is the deployment of an older and more common tool used to manage shared infrastructure in the public interest: public ownership.
Taking not just British Gas, but the UK’s wider renewable and nuclear energy assets, into public ownership can ensure the energy system is organised for the public good – and would eliminate value extraction for external shareholders. Moreover, it could be a spur to more rapid decarbonisation and the on-shoring of the green industrial supply chains of our post-carbon future.
Today, it is British Gas. Last week, it was the oil and gas giants. The reality is that this pattern of extraction – of financial wealth from households to shareholders, and of fossil fossils from the Earth – will continue without systemic change. Given the context, of a deeply entangled social and energy crisis, ambitious reform is the surest path toward an energy future that works for us all.
