Friday, 27 July 2012

British Gas profits.

Those of us who've signed up to a 25 year Feed-in-Tariff contract enjoy the benefit of it being linked to the Retail Prices Index (RPI). 

RPI currently stands at 2.8% which is down from the 4.8% increase existing FiT recipients received in April 2012. I thought that being indexed linked was a great idea, inflation doesn't take a big bite out of your earnings each year. What could be better?

Being linked to the profits of the Big 6 energy providers would be better. a lot better. British Gas announced this week that their profits had risen by 23%...Link to Daily Mail report.

Those of you who read the newspapers at this time of the year will have noticed a trend. Energy companies announce their profits and almost without exception it's "Another BIG profit rise." 
They made an obscene amount of money last year, and because they keep increasing the prices to consumers they'll continue to make even bigger profits, year on year. 

It's hardly surprising that they make a profit, even I could make a profit if my raw material price is falling at the same time I raise prices.

Our Energy bills are based on oil prices. If you look at the graph above you'll notice that there was a huge price rise in June 2008. Due to the booming economies of countries like China and India, 'supply and demand' market forces pushed the price of a barrel of crude to US$145 (US$156 in today's money).
World wide recession and a slow down of global economies has taken it's toll on oil prices. The price of the same product today is US$88.

Take a look at the cost of wholesale electricity for the same period (Blue line). Notice anything similar in the pattern? Same jump in costs in June 2008. Same dramatic fall the following year...

Now take a look at the red line showing Big 6 retail prices. They increased their prices when oil costs shot up, but there are no signs of then reducing them to reflect the current situation.We're delighted when they offer us a new tariff which guarantees rices for 12 months. it's not much of a gamble on their part is it?

I made the point last year that it's naive to expect these companies to provide a "public service", they have shareholders to satisfy. It is reasonable to expect market forces to apply in a competitive market. We deserve legislation from the government and Ofgem to ensure this 'licence to print money' ends soon.

Twitter: (@solaricarus)

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