Centrica, the owner of British Gas, and Drax, the largest coal fired powered station in the UK, have both issued profit warnings. Furthermore, Centrica announced that it intends to sell its loss making gas-fired plants, two of which are the largest in the UK.
“While earnings are anticipated to fall in 2014, we expect an improvement in 2015, assuming more normal weather conditions and reflecting the prospects for underlying growth,” said Chief Executive Sam Laidlaw.
Utility companies struggle all across Europe, where the crisis has firmly hit the UK. Centrica is to actively seek investors for its three largest gas-fired power plants at Langage, Killingholme and Humber, which have been losing money due to the low spark spread between gas and power prices.
Drax has evidently been hit hard by lower power prices, as can be seen from the graph above. The price of Day Ahead power has recently dipped below £40.00/MWh. This is largely a result of weak demand during the mild winter as well as high levels of electricity generated by wind power.
You may assume that, with the commodity price in collapse, this would logically mean lower bills. Regrettably not, recent contracts tendered by alfaenergy show that the commodity element of your bill now makes up less than 50% of the bill. This is occurring several years sooner than previously forecasted; non-commodity costs, such as those related to distribution/transmission , and policy costs, such as renewable obligation, make up around 40% of the bill. There will be a detailed report on this worrying trend in the coming weeks.
Power generators across the country will now see 2014 profit forecasts slashed. RWE has already had its first loss in more than 60 years and we can expect many others to follow suit. Centrica has begun to sell off some major assets in order to concentrate on its smaller generators. It paints a gloomy picture for the future where the expected 8GW of power that is scheduled to shut down could increase on the back of poor profitability, leaving the UK with a serious energy supply gap.
