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UK Energy Supply Sector To Return To Profits For First Time In Five Years

The UK’s energy supply sector is set to return to profits after five years of losses and two years of bankruptcies and hardship in the energy crisis, regulator Ofgem said on Tuesday but warned companies against splashing profits on dividends.  

The UK’s energy providers were decimated by the surge in wholesale natural gas prices at the end of 2021 and in 2022 when around 30 suppliers went bankrupt and exited the energy market. The UK has a so-called Energy Price Cap in place, which protects households from high bills by capping the price that providers can pass on to them, but which additionally burdens energy providers.

With lower wholesale gas prices this year, the remaining energy firms can return to profits, Ofgem said.

“The price cap has now dropped, and the price of wholesale energy, while still well above pre-crisis levels, is much lower than over the last two years,” the regulator said in a statement carried by Reuters.

“This means the sector is likely to return to profit this year and suppliers can recoup some of the losses from recent years.”

However, Ofgem’s chief executive Jonathan Brearley warned companies in an open letter that he expected them not to return to paying out dividends before meeting the financial stability requirements of the regulator. 

“However, a return to the practices we saw before the energy crisis isn't on the table - suppliers must reciprocate the support the sector was given by consumers and taxpayers when wholesale prices increased by behaving responsibly as prices fall and profits return,” Brearley wrote in the letter.

“The energy market has changed. Ofgem has introduced major changes to the market, and we need suppliers to learn the lessons of the energy crisis and play their part by making sure they’re financially robust, can absorb potential losses and are meeting our new capital requirements,” the regulator’s CEO added.  

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By Tsvetana Paraskova for Oilprice.com

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