We’ll aim to show that although some of the energy companies are saying they only make 5% profit, if you look at it a different way – a way they wouldn’t be so keen on you looking at it, the profits are more like 25% for gas and 16% for electricity. Here is how we come to this conclusion…
We can work out all the proportions that make up your bills including profit for average gas and electricity bills. The difference in our calculations is that we don’t believe the wholesale price, the distribution costs, the transmission costs, the VAT and the environmental charges should be counted when working out profit percentage as these are just directly passed onto a consumer and so shouldn’t really have anything to do with the supplier; they are keen to tell you that!
If we look at what the profit is compared to the actual revenue within their gift then its a different picture. The charts below show the profit compared to those costs expanded out on the right.
As you can see, this makes 6/24 or around 25% for gas and 5/28 or 16% for electricity. No wonder, as our next blog outlines, they have been conflating figures to obfuscate the picture.
They’d be much more honest to quote their profit as a absolute figure of each kWh supplied. It would be interesting to see them publish how those figures have changed over the last 10 years – maybe the Energy and Climate Change Committee can ask these questions?
Separate to this analysis is the profit margins attributable to their respective generation and trading arms – which are around the 20-25% region.
Edit: An interesting analogy we’ve come up with using a delivery company link CityLink. The units of energy delivered to your house are like packages. The wholesale costs, distribution, transmission, vat and environmental charges are analogous to the value of the contents of the box. You wouldn’t expect Citylink to include the contents of the packages you order when calculating their percentage profit. It makes no difference if the package contains an expensive watch or some breakfast cereal.