Will Straw, an associate director of the Institute for Public Policy Research (IPPR) think-tank, said: “Why do they need to make a profit of 5 or 6 per cent when the supermarkets can make do on as little as 2 or 3 per cent? The retail profits they do make should be ploughed back.”
Dieter Helm, professor of energy policy at Oxford University, said: “Why should retailing electricity attract the sort of margins that supermarkets (with all their shops, stocks and associated costs) cannot?”
Ramsay Dunning, the general manager of Co-operative Energy, one of Britain’s biggest independent gas and electricity suppliers, goes one further, dismissing talk of profits for investment as a “red herring” and accusing Ms Knight of being “disingenuous” as the cost of investment has already been accounted for.
“She is throwing mud into the water with that comment because the 4 to 5 per cent number she is using is calculated after accounting for the cost of investment,” he said. In other words, the notion that big profits are needed to help fund investment is largely irrelevant because the profit margins usually quoted by the Big Six already include investment costs.
The Big Six produce electricity via a mixture of gas, coal, nuclear, wind and solar-power stations. Although the retail arms buy their energy on the open market, much of it has been produced by their own generating divisions. It is these generating divisions that face the biggest investment costs in the coming years in the form of new power stations of all types, Mr Straw said.
But the generating arms’ profit margins are much higher anyway – at between 8 and 32 per cent last year, depending on the company– while they also receive big government subsidies to encourage low-carbon generation.
“The Big Six can’t have it both ways,” Mr Straw said. “Either their retail and generation arms are separate, or they’re not. If they are, they should bring energy bills down because they don’t need that much profit. If they’re not, they should still bring bills down because the generating arms are making so much.”
Centrica, which owns British Gas, handed £500m to its shareholders in February to use up “surplus” cash after pulling out of the Hinkley Point C nuclear power project.
Read More: Here