In the current economic climate in the UK the constantly rising energy prices are becoming rather a sore issue. Nationwide consumers are complaining about the price hikes – and many of us are making the assumption that the energy companies are making huge profits – but is this really true?
Energy Company Profits
Whilst it’s true that the energy companies do make literally hundreds of millions of pounds in profit we must bear in mind that they also service millions of customers all across the UK. Even with companies such as British Gas announcing profits of over £500 million in 2012 how much is that as an actual percentage of their turnover?
Well, before we reveal the ‘shocking truth’ let’s take a brief look at how the energy markets work. When thinking about the UK energy market there are three central components in the chain, energy generation, energy distribution and energy supply. As the energy market in Britain is privatised there is also a further layer which supervises the whole process and acts as a governing body – this company is called OFGEM.
One of the key problems here is that despite anti-monopoly measures the ‘big 6’ energy companies (that is the 6 major companies who between themselves account for around 80% of the supply market) not only supply energy but they also generate that energy too. What this means is that they can, in effect, create the energy, then sell it to themselves at an increased rate and then pass this further cost on to the consumer – which by the way, is you. What this means is that their actual profit in this part of the company is lessened because we don’t take into account the profit they initially made by selling the energy to themselves in the first place.
Once this tricky resale technique is accepted as standard practice then energy supplier profits suddenly become much less in percentage terms. If one couples this data with evidence to show that the UK is one of the cheapest energy markets in the EU (although it’s hard to find any figures actually supporting this) it becomes statistically significant evident that the big 6 energy providers are only making a very small amount of profit in percentage terms.
So are you ready for the ‘shocking truth’? On average UK energy companies recorded less than 1.6% profit in 2012. But now we know how they got there it doesn’t seem like such a drastically small figure after all – especially as that adds up to circa £25 billion across the big 6 companies – that’s a pretty tidy sum – made up of money from your pocket – that you’ll never see again.
If you’re not happy about this situation there’s not a lot you can do except for writing to your local MP who should (if they receive enough complaints) take this up in Parliament. A second – and perhaps more effective method is to switch suppliers to one of the smaller energy companies. These smaller companies generally record less profit which usually means you’ll be paying less for your energy. If you’re not sure who’s the cheapest in your local area check with an online switching site.
I am a copywriter and poet with a bachelor’s degree in English Language and Creative Writing. I have worked in various marketing & creative roles since 2001. My aim is to publish at least one novel before I die – so far I have had 2 poems published internationally in print as well as some online. In my professional capacity I currently work for an advertising agency in London.