Price cap adjustment boosts Scottish Power profits

Scottish Power has reported profits of more than £560 million for its retail business last year.

The company, which has published its accounts for year ending 31 December 2023, attributed the improved results to adjustments to the price cap which allow suppliers to recover certain costs.

Overall, Scottish Power’s group revenue has increased by £1 billion to £9.4 billion, while operating profit was £1.9 billion, an improvement of £1 billion.

The energy retailer, which supplies 4.5 million gas and electricity customers, revealed that its customer business revenue increased by more than £1 billion to £7.7 billion in 2023, primarily driven by domestic revenues.

At the same time it posted an operating profit of £561 million, an improvement of £796 million on the company’s 2022 operating loss.

The company explained that in 2022 its retail gross margins “were materially adversely impacted” as the price cap did not allow suppliers to fully recover high energy costs.

It further explained: “In the first half of 2023, gross margins benefitted from specific price cap allowances which facilitated recovery of these prior year losses.

“In addition, limited energy cost market liquidity has resulted in an inability to perfectly match the commodity cost element of the quarterly price cap tariff with resulting timing impacts across 2022 (adverse) and 2023 (favourable).

“These two factors have contributed an estimated £686 million of the £796 million year-on-year improvement.”

It comes as Centrica also recently benefited from adjustments to the price cap. Earlier this year it revealed that its British Gas arm made bumper profits in 2023 thanks to recovering around £500 million via the cap. The group’s preliminary results for the year showed a total adjusted operating profit of almost £2.8 billion, down 20% from £3.3 billion in 2022.

Despite improved profit margins, Scottish Power did see cost increases in both the Energy Company Obligation (ECO) scheme, and also in bad debt.

As well as higher tariffs, it primarily blamed the increase in bad debt on the forced prepayment meter ban for much of the year, as well as “adherence to the rules for the protection of vulnerable customers”.

Earlier this year, analysis from Bfy Consulting highlighted the impact of the PPM forced installation ban which was implemented following shocking revelations concerning installs among British Gas customers.

“While the 2023 install ban was in place, the volume of accounts in debt grew by 5%, but average balances grew by 25% (£250) as total debt grew by 30% (~£250 million) in the period. Some of the debt growth will have been driven by customers seeking Additional Support Credits, as they struggled to pay for their energy and relied on support from suppliers,” Bfy said.