The retail division of ScottishPower, which supplies gas and electricity to 4.8 million households, plunged to a loss in the first three months of this year as the company absorbed the cost of surging wholesale prices not yet passed on to customers.
Earnings at the retail business fell £12 million into the red, down from a profit of £106m in the same period a year earlier. This pulled earnings across the group – which also includes renewable energy generation and a transmission network business – 11% lower to £497m.
Prices paid by Glasgow-based ScottishPower and other utility suppliers for gas on international markets started soaring in the latter part of last year with demand increasing as the global economy began its recovery from the pandemic. In the UK, these costs only started feeding through into consumers’ bills from the beginning of this month after regulator Ofgem raised its price cap by £693 to take the standard tariff to £1,977 per year for the average UK household.
The energy price cap is meant to ensure consumers are not charged unfairly. Ofgem takes an average of wholesale prices over a six-month “index period”, after which suppliers are allowed to raise prices to cover any increase in their costs.
READ MORE: Ofgem launches review of local energy systems
Some 30 UK suppliers have gone bust since August, unable to withstand the collapse of their profit margins. But though the new price cap is now in effect – with distressing impact on many households – it is questionable whether ScottishPower’s retail division will return to profitability in the coming months.
From a spot price of roughly 35p to 45p per therm last spring, the wholesale cost of gas hit 108p per therm as of August 1, when the index period used to set April’s increase began. By the close of the index period on January 31, the price was at 210p per therm.
Gas prices have a knock-on effect for that of electricity. From a spot price of £113 per megawatt hour (MWh) on August 1, the cost of electricity reached £175 per MWh by January 31.
All of this was prior to the invasion of Ukraine which has put further upward pressure on wholesale prices. Now two-thirds of the way through the current index period that will determine the next price cap increase taking effect in October, the spot price of electricity was yesterday sitting at £185 per MWh.
Gas was trading yesterday at 147p per therm but has spiked to eye-watering highs of up to 800p in the days immediately after the Russian invasion.
ScottishPower chief executive Keith Anderson has warned repeatedly in recent weeks that the surge in energy prices is “beyond” what the industry can deal with. The time lag between the review period and a new price cap taking effect means that suppliers are still at times buying at wholesale prices above what they charge customers.
“UK households are facing a cost-of-living crisis that is unprecedented and is only set to get worse with energy prices likely to rise further in October,” Mr Anderson said yesterday.
READ MORE: Give most vulnerable £1000 off bills says ScottishPower chief
“The scale of this issue is too big for one industry to deal with and that’s why we believe we need a new approach which could see Government reducing bills by £1,000 for the most vulnerable with a targeted fund and costs only recouped once prices return to normal and over a longer period of time.”
Turning his attention to the renewables business, Mr Anderson noted that onshore wind generation increased by 40% in the first quarter as weather conditions were more favourable than in the same period a year earlier. Also aided by the increase in energy prices, the division posted a 20% increase in earnings to £250m.
Owned by Spain’s Iberdrola, ScottishPower also runs the high-voltage system of pylons that transmit electricity in central and southern Scotland, plus low-voltage timber pole and underground networks in Scotland, northern Wales and Merseyside. Earnings from this business were 6% higher at £250m.
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