A quick recap…
Calls for a wider windfall tax on Britain’s energy sector are rising, after two major companies reported bumper profits.
Centrica burst back into the black, with a statutory operating profit of £6.5bn for the first half of this year, up from a loss of £1.1bn a year ago.
Its British Gas arm grew its earnings by almost 10 times, from £98m to a record £969m, at a time when many households have struggled to pay their energy bills.
British Gas benefitted from Ofgem’s controversial decision to allow energy suppliers to claim greater profits from hard-hit customers via the energy price cap.
Energy giant Shell made $5bn, or £3.85bn, in the last quarter. Earnings were hit by the drop in wholesale oil and gas prices this year, with Shell making less than half the $11.47bn of Q2 2022.
Both companies lifted their dividends, and are also passing spare cash to investors through share buyback programmes.
Campaigners have heavily criticised the government for not reining in the sector.
The TUC said ministers were allowing energy companies to “laugh all the way to the bank”.
Greenpeace UK erected a giant spoof advertising billboard outside Shell’s HQ, drawing attention to the oil and gas industry’s responsibility for extreme weather linked to the climate change caused by the burning of fossil fuels.
It shows an image of a Greek firefighter battling to contain a wildfire near Athens last week, is emblazoned with Shell’s logo and features the slogan “Our profit, your loss”.
Opposition politicians also weighed in.
Ed Miliband, Labour’s shadow climate and net zero secretary, said Labour would introduce a “proper windfall tax” on oil companies and promote cheap renewables to bring down bills for households.
Miliband said:
“These figures demonstrate the continuing scandal of the Tory failure to act on the windfalls of war being pocketed by oil and gas companies
The Liberal Democrat leader Sir Ed Davey called for a general election, saying:
“It beggars belief that after all these months this Conservative Government is still allowing energy firms to rake in extraordinary profits while millions of families struggle.
“It’s time for a general election and a proper windfall tax to fund the support families desperately need.”
The Green Party called for a carbon tax would provide the money to invest in free home insulation, properly-funded public services and a universal basic income.”
The Unite union argued that public ownership is the only way to end the ‘chaos in Britain’s energy sector.
Scope, the disability equality charity, says Britain needs a social energy tariff - a discounted rate - for disabled people to protect them from sky-high energy bills.”
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A quick recap…
Calls for a wider windfall tax on Britain’s energy sector are rising, after two major companies reported bumper profits.
Centrica burst back into the black, with a statutory operating profit of £6.5bn for the first half of this year, up from a loss of £1.1bn a year ago.
Its British Gas arm grew its earnings by almost 10 times, from £98m to a record £969m, at a time when many households have struggled to pay their energy bills.
British Gas benefitted from Ofgem’s controversial decision to allow energy suppliers to claim greater profits from hard-hit customers via the energy price cap.
Energy giant Shell made $5bn, or £3.85bn, in the last quarter. Earnings were hit by the drop in wholesale oil and gas prices this year, with Shell making less than half the $11.47bn of Q2 2022.
Both companies lifted their dividends, and are also passing spare cash to investors through share buyback programmes.
Campaigners have heavily criticised the government for not reining in the sector.
The TUC said ministers were allowing energy companies to “laugh all the way to the bank”.
Greenpeace UK erected a giant spoof advertising billboard outside Shell’s HQ, drawing attention to the oil and gas industry’s responsibility for extreme weather linked to the climate change caused by the burning of fossil fuels.
It shows an image of a Greek firefighter battling to contain a wildfire near Athens last week, is emblazoned with Shell’s logo and features the slogan “Our profit, your loss”.
Opposition politicians also weighed in.
Ed Miliband, Labour’s shadow climate and net zero secretary, said Labour would introduce a “proper windfall tax” on oil companies and promote cheap renewables to bring down bills for households.
Miliband said:
“These figures demonstrate the continuing scandal of the Tory failure to act on the windfalls of war being pocketed by oil and gas companies
The Liberal Democrat leader Sir Ed Davey called for a general election, saying:
“It beggars belief that after all these months this Conservative Government is still allowing energy firms to rake in extraordinary profits while millions of families struggle.
“It’s time for a general election and a proper windfall tax to fund the support families desperately need.”
The Green Party called for a carbon tax would provide the money to invest in free home insulation, properly-funded public services and a universal basic income.”
The Unite union argued that public ownership is the only way to end the ‘chaos in Britain’s energy sector.
Scope, the disability equality charity, says Britain needs a social energy tariff - a discounted rate - for disabled people to protect them from sky-high energy bills.”
Centrica’s shares are continuing to climb after this morning’s jump in profits.
They’re now up over 7% to 132p. their highest level in almost four and a half years.
Investors will be cheered by the 33% increase in Centrica’s dividend, and a £450m extension to its share buyback programme.
AJ Bell investment director Russ Mould says:
“British Gas owner Centrica won’t be winning a popularity contest with the public anytime soon, but shareholders may not be too bothered.
“The massive increase in first-half profit reflects the impact on its retail energy-facing business of a lifting of the price cap but the contribution made by its energy marketing and trading division, helped by the big volatility in commodity prices, should not be ignored.
“The strengths of Centrica’s integrated model have really come to the fore in recent times and after several lean years, the company is able to reward investors handsomely – lifting its dividend substantially and extending a share buyback.
“Centrica needs to tread carefully given many households are struggling to pay the bills. The scandal over forced installation of pre-payment meters means the company is already skating on thin ice.
“Political and regulatory pressure may mount on the business if it continues to show largesse with its shareholder returns while taking a hard line with vulnerable customers. All in all, these stonking numbers could put Centrica in the firing line.”
Ofgem’s controversial decision to allow energy suppliers to claim greater profits from hard-hit customers via the energy price cap has also led to a windfall for EDF Energy and Scottish Power, as well as British Gas, my colleague Jillian Ambrose reports.
French state-owned EDF reported this morning that its UK business made profits of almost €2.3bn (£2bn) for the first half of the year, up from €860m in the same months last year. That included the earnings from EDF’s nuclear power plants in the UK.
It said this increase was driven mainly by the regulated price cap, with EDF telling shareholders:
The rise in EBITDA is essentially explained by a recovery of margins in the supply business, driven mainly by allowances in the UK domestic default tariff cap allowing suppliers to recover costs incurred through the market turbulence of previous years.
Scottish Power, which is owned by Spain’s Iberdrola, reported a profit of £576m for the first half of the year from a loss of £86m last year.
British Gas’s blistering 900% jump in profits so far this year is fuelling calls for discounted energy bills for disabled people, their carers and older people struggling with bills.
Scope, the disability equality charity, has been calling for a social energy tariff, which would benefit those receiving means tested benefits or disability benefits, or receiving Carer’s Allowance.
James Taylor, head of strategy at Scope says today:
“It’s obscene that energy companies continue to make massive profits whilst people can’t afford to charge wheelchairs and stairlifts and still have huge energy debt.
“Energy companies need to start putting disabled customers first.
“We need a social energy tariff - a discounted rate - for disabled people to put an end to sky-high energy bills.”
Centrica chief executive Chris O’Shea has defended the group’s profits, arguing that its solid balance sheet had helped to protect consumers after several energy suppliers collapsed over the past few years.
O’Shea told a briefing:
“To be sustainable and stable you have got to make a profit,” he said during a briefing.
Centrica also points out that it has committed £100m in additional customer support since the start of the energy crisis.
But that figure is dwarfed by British Gas’s adjusted profits of £969m so far this year.
Over half of those earnings relate to changes to the regulator’s price cap which allowed Britsih Gas to recoup losses earlier in the energy crisis.
Ofgem set its price cap at £4,279 for a typical household in January 2023, rather higher than the £2,500 cap under the government’s Energy Price Guarantee to protect households. The difference was covered by the Treasury; with government payments to soften the impact of rocketing energy bills pushing up public borrowing.
Centrica shareholders are to benefit from the surge in profits reported this morning – the company is proposing an interim dividend of 1.33p, up a third from the 1p paid last year.
UK businesses are less anxious about soaring energy bills, according to new data from the Office for National Statistics.
The ONS reports that fewer than 1 in 10 businesses (9%) reported energy prices as their main concern. That is the lowest proportion since the question was first asked in February 2022, the month of Russia’s full-scale invasion of Ukraine.
Firms were more worried about the risk of falling demand for their goods and services, and about the impact of inflation.
The ONS also reports that 1 in 8 businesses were experiencing worker shortages in mid-July 2023, with 38% of those businesses reporting that employees were working increased hours as a consequence.
The near-900% jump in British Gas profits so far this year to almost one billion pounds show there are “still massive profits to be made from letting the climate burn,” says Green Party co-leader Carla Denyer.
The Green Party are calling for a carbon tax, paid by major polluters, which could fund cost of living support.
Denyer said:
“It’s not acceptable that customers struggling through a cost-of-living crisis are facing higher bills because the regulator and British Gas have done a deal allowing it to rake in a 900 per cent increase in profits.
“If nationalisation wasn’t already one of the most popular Green Party policies there is - these profits very much make the case for the public to take control of this business.
“Making so much profit whilst so many people are struggling to pay their bills, shows our cost of living crisis for what it really is - a greed crisis.
“Fossil fuel companies drive the world’s greenhouse gas emissions, but are still allowed to profit from their damaging activities. A carbon tax would target these big polluters and render coal, oil and gas financially unviable as cheaper renewable energies rise up to take their place.
“These green policies work best when everybody benefits. That is why our policy has always been to use the proceeds of a carbon tax as a social dividend. This will help people to get through this cost of living crisis and make the UK a more equal society. Yields from a carbon tax would provide the money to invest in free home insulation, properly-funded public services and a universal basic income.”
Shadow climate secretary Ed Miliband has repeated Labour’s call for a more stringent windfall tax, after Shell reported profits of over $5bn for the last quarter.
Miliband said:
“These figures demonstrate the continuing scandal of the Conservatives’ failure to act on the windfalls of war being pocketed by the oil and gas companies.
“Labour would bring in a proper windfall tax to help tackle the cost-of-living crisis.”
Last November, chancellor Jeremy Hunt increased the current energy profits levy (EPL) from 25% to 35% and extended by two years, until March 2028.
The EPL is levied on North Sea oil and gas operators, but is criticised for not capturing excess cash generated by oil and gas giants’ trading, refining and forecourts divisions.
Although Shell’s shares are down today, -1.7% at £23.57, they’re sharply higher than before Russia’s full-scale invasion of Ukraine.
In mid-February 2022, Shell’s shares traded around £20. During 2022, its shares jumped by around 43%, as did rival BP.
This year, Shell are only up around 1%, as the drop in wholesale oil and gas prices eat into its earnings.
Victoria Scholar, head of investment atinteractive investor, says:
After collapsing in 2020 at the height of the pandemic when the global economy ground to a halt, shares in Shell have been sharply rebounding off the lows, although the pace of gains has tempered with shares up modestly so far in 2023.
Despite this, the analyst community remain bullish towards the stock with no sell recommendations and a majority of buy recommendations. Today Shell is under pressure, dragged down by lower earnings.”
Roberto Rivero, market analyst at Admirals, reckons the drop in Shell’s profits in the last quarter shows the energy sector is moving from boom to bust.
“The nature of the oil and gas industry is one of boom and bust. Prices rise, then they fall. When prices are high, oil and gas companies inevitably make hefty profits. When they fall, these profits begin to normalise.
It has been evident for some time that we are entering the “bust” phase of the oil and gas cycle, as prices ease from the multi-year highs of last year. As prices have trended downwards over the last year, so too have Shell’s earnings, which dropped more than 50% in the second quarter.
Shell could take a further hit in the second half of 2023 as sluggish economic growth in advanced economies and a lacklustre post-Covid Chinese recovery could exert further downward pressure on oil and gas prices.
However, OPEC+, who have been cutting production since November to shore up oil prices, may have something to say about that.”
In the banking sector, Barclays has played down the risks of the UK mortgage crisis for its own customers.
Barclays says more than half are five-year fixed contracts and have been “behaving rationally” by dipping into savings to make larger payments, our banking correspondent Kalyeena Makortoff reports.
The comments came as the London-headquartered bank revealed its own profits had jumped by nearly a third to £1.96bn in the second quarter, despite putting aside £372m to protect against potential defaults by borrowers.
Around £95m of those loan loss provisions were linked to its UK business, but executives assured that Barclays’ mortgage book was sound.
“There are a number of factors that contribute to our comfort in the higher rate environment,” Barclays CFO Anna Cross told journalists, including that the bank applied “strict affordability tests” since 2013.
“Second, looking at the profile for refinancing, the proportion…on five-year and over initial fixed rates [mortgage] has increased materially since 2019, from 33% to 51%. This shift delayed the potential increase in rates for many borrowers, allowing them more time to mitigate the impact.”
Cross added that despite forecasts for more persistent inflation and a higher peak for UK interest rates, she was assured by the fact that customers were “behaving rationally and have started to use surplus deposit balances to manage their finances more accurately.”
She added:
“Over a quarter of our customers with mortgages have been making excess repayments reducing their loans ahead of potential remortgaging.”
Financial data firm Moneyfacts has reported that the average 2-year fixed residential mortgage rate has dropped to today, to 6.83% from 6.86% on Wednesday.
The City view is that Shell’s results are somewhat disappointing, as Jamie Maddock, equity research analyst at Quilter Cheviot, explains:
“In its latest quarterly report, Shell disappointed by missing consensus profit expectations by around 10%, reporting sharply lower year-on-year performance due to weak oil and gas prices plus refined product margins. While the energy crisis resulted in elevated plus volatile prices that had previously boosted Shell’s results across a couple of divisions, this was no longer the case for Q2’23.
However, the hike in dividend payments – and a new $3bn share buyback – should cushion any disappointment.
Maddock says:
“Analysts had previously called for an increase in dividends and Shell has delivered by raising its dividend by 15%, as previously indicated at its capital markets day.
The company remains committed to using its bumper profits over the past 18 months to fund a repurchasing scheme. Its stock buyback programme of at least $5.5bn is better than previously indicated, but only modestly so. The high end of the company’s capital expenditure guidance has also been trimmed.
Public ownership is the only way to end the ‘chaos in Britain’s energy sector, argues Unite general secretary Sharon Graham:
“British Gas’ owner Centrica has just reported its highest ever first half year profits, raking in almost £1 billion.
“We need to stop dancing around our handbags and grasp the nettle. The only way to end the chaos in our energy supply is staring us in the face - public ownership. It is absolutely affordable. It would protect businesses and households. Put simply, it’s a no brainer.
“Both the Government and Labour need to decide whose side are they on.”
Katy Chakrabortty, head of policy and advocacy at Oxfam GB, says we shouldn’t be fooled by the fall in Shell’s profits in the last quarter.
Profits still running into the billions, points out Chakrabortty (to $5bn in Q2, from $11.5bn a year ago.)
These colossal profits are a gross injustice – a symptom of an economy that is putting short-term profits above people and planet. As we are seeing this summer with heatwaves, droughts and floods that are destroying lives on an unprecedented scale, these profits come with a huge climate cost.
“The UK government should be taxing these rich polluters more and helping to incentivise a fair switch to clean, renewable energy. Funds are urgently needed to support people in low-income countries, who have done the least to cause the climate crisis but have been hit the hardest, rebuild their lives. Surely it is a no brainer that the biggest and richest polluters should be the ones who pay.”
Shell’s windfall profits have not translated into higher investment in its renewable operations, says Sophie Flinders, analyst at the Common Wealth thinktank.
Shell’s payouts of $2.6bn in dividends and $3.6in share buybacks exceed even the company’s profits this quarter, with shareholders receiving bigger sums than the oil giant’s own surplus. In 2022, their CEO made £9.7m, up 53% from 2021.
In short, there’s too much money to be made in fossil fuels to place the responsibility of decarbonising energy on oil giants like Shell. These windfall profits have not translated into higher investment in Shell’s renewables. Deadly heat waves in America, wildfires across the Mediterranean and floods in the Philippines and Pakistan show that the crisis is already upon us — and that oil giants need to be consigned to the dustbin of history.
Shareholders are lining their pockets at the cost of a habitable climate. Clear, ambitious political interventions are needed to decarbonise energy and avert the worst of the climate crisis.
https://news.google.com/rss/articles/CBMilwFodHRwczovL3d3dy50aGVndWFyZGlhbi5jb20vYnVzaW5lc3MvbGl2ZS8yMDIzL2p1bC8yNy9hbmdlci1icml0aXNoLWdhcy1vd25lci1jZW50cmljYS1wcm9maXRzLXN1cmdlLXNoZWxsLWVhcm5pbmdzLWVjYi1yYXRlcy1oc2JjLWZhcmFnZS1idXNpbmVzcy1saXZl0gEA?oc=5
2023-07-27 11:57:27Z
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