DL Analysis of Electricity Profits 310323.pdf

Analysis of Electricity Generation and Supply Profitability looks at Electricity Supply and Electricty Generation. Highlights the profitability of Generation and the role of OFGEM. The drive for Net Zero should be bringing bills down but the Cost of Living Crisis continues with the electricty price pegged to a national wholesale gas price which plays a tiny role in meeting electricity demand in Scotland. Can the UK market be reformed? Why are retail prices so high when much of the energy from hydro power and solar and wind has no link with the cost of gas and are very low cost to produce. Will Mission Control get the message that cost matters if we want to produce Green Steel, Green Hydrogen, Green Ammonia here? The UK Government and Scottish Government must both work to bring household bills and business bills down.

1. Review of Electricity Company Profitability
The Generation Game

Revised Edition to 31
st
Mar 2023
Cllr Derek W Louden
1 Station Road
Tain
Ross-shire
IV19 1HX
Tel: [phone]
Mob: [phone]
Email: [email protected]

2. Nine years ago the “Big Six” presented a uniform story of low returns which no-one could consider
were exhibiting evidence of monopoly or oligopoly profit to the Competition and Markets Authority
Inquiry. I lobbied hard to have the CMA look at the wholesale market but was literally laughed at for
my pains. There is no trace of the evidence I provided being referenced in the CMA’s report. Each
year I take another look at company profitability. What have I found this time?
Scottish & Southern Energy’s Supply business – their retail arm now only selling electricity to
businesses is loss making and earning no return unlike during the CMA Inquiry in 2015:

The Generation business which produces the electricity is shown below:

SSE’s returns have risen since 2015. SSE earned 44.50% on Generation Sales in 2021. Of every £1 in
sales, over 40p was profit. The return fell in 2022 as price hedges expired ans SSE had to pay higher
rates in its thermal business. The Scottish renewables business remains very profitable.
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
SSE EBITDA % return on Supply Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
SSE EBITDA % return on Generation Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf

3. SSE claimed to earn a return of 5% in 2015. By 2020 this had risen to 21.75% by 2022 it has fallen
back to 18.14%. CMA dismissed concerns about the Generation business and problems appear to
have worsened since 2015. Generators earn more than we’d expect in a competitive marketplace.

Centrica’s supply business was facing real competition over the last decade. The return earned has
fallen to just above zero. Is the competition in the Supply business reflected in reduced returns for
Generation?

0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
SSE EBITDA % return on Total Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
Centrica EBITDA % return on Supply Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf

4. Centrica’s Generation arm performance is illustrated in the diagram below.

This shows that Centrica earned a 72.84% EBITDA rate of return on generation sales in the most
recent year. They’ve clearly not seen gas costs rise – but customer bills have soared.

Centrica has shown a massive improvement in 2022 with the return on Total Sales earned at 10.79%
being well up on the 4.68% earned in 2015.

0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
Centrica EBITDA % retn on Generation Sales
2009-2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
Centrica EBITDA % return on Total Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf

5. E.On’s CSS reporting ended in 2020. Generation assets were sold to RWE who don’t report on them
either. The supply business doesn’t complete the CSS return. I’ve no idea why OFGEM can’t get this.

E.On’s return Generation Sales rose dramatically from 18.56% in 2015 to 78.13% in 2019 following
the CMA’s signal that profits earned from generation would be ignored. In 2020 E.On sold out to
RWE exiting the Generation business. I can’t really think why a firm would sell out of an industry
earning a 78.13% EBITDA return. Unless it was to pocket the Capital Gain which would only generate
a tax bill if the gain couldn’t be “rolled-over”. Which I’d assume it was.
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
E.On EBITDA % return on Supply Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
E.On EBITDA % return on Generation Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf

6. E.On’s overall return was 5.85% in 2015. This fell to a loss of -1.39% in 2020 after which generation
assets were sold to RWE & E.On stopped providing CSS returns for Generation & Supply to OFGEM.

EDF’s Supply business wasn’t doing well in 2015 earning a return of 1.18% no improvement has been
seen since. In 2020 they lost -2.24% by 2022 this had deteriorated further. Nuclear plant outages in
France would have required them to purchase more gas-derived electricity to meet demand. Before
you start to weep for them, we’ll move along to the next diagram....
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
E.On EBITDA % return on Total Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
EDF EBITDA % return on Supply Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf

7. EDF earned a whopping 35.92% return from their Generation arm in 2015. They’ve kept generating
profit in the part of the business which isn’t exposed to much public scrutiny. The CMA said returns
averaged 5.00%. By 2022 EDF were making just under 49%. Nearly half of their income is profit.

In 2015 EDF’s EBITDA return on Total Sales was 17.13%. The return presently being earned is 23.07%
in an industry which is supposed to be regulated in the public interest. This market shows clear signs
of regulatory capture. It benefits participant firms and it lets down the public and businesses.
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
EDF EBITDA % return on Generation Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
EDF EBITDA % return on Total Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf

8. RWE npower’s Supply business hadn’t earned a profit since 2014. They exited the supply business in
a deal with E.On which saw them acquire E.Ons Generation business. They haven’t submitted a CSS
return for Supply since 2019.

RWE gave the CMA its profit percentage from Generation sales as 9.86% in 2015. It reported a
70.34% EBITDA return in 2019 and then sold its Supply business to E.On. It hasn’t reported its
earnings from Generation since 2019. Where a business withdraws from one segment it should still
have to report on the segment of the market it remains in. Why isn’t this done?
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
RWE npower EBITDA % return on Supply Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
RWE npower EBITDA % return on Generation Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf

9. RWE’s profits in their UK business rose steadily reaching 8.15% EBITDA on Total Sales in 2012. RWE
has exited the Supply business and no longer submits a CSS Statement for Generation. They should
do.

Scottish Power made a 4.74% return on Supply sales in 2015. Since then profits have disappeared
entirely. The closure of Cockenzie and Longannet has left Scottish Power short of the energy needed
to meet customer demand. Without adequate hedging they were exposed to a high price wholesale
market. This resulted in significant losses in 2021 and 2022.
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
RWE npower EBITDA % return on Total Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
Sc Power EBITDA % return on Supply Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf

10. Scottish Power saw a Generation profit percentage of 23.82% in 2015. This rose to 73.8% in 2020.
All of Scottish Power’s generation comes from Renewables earning a much higher return than coal.

Scottish Power had an EBITDA return on Total Sales of 19.1% in 2020. Since then the EBITDA return
has fallen as Scottish Power became reliant on a high-price wholesale market to meet customer
demand rather than their own generation.
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
Sc Power EBITDA % return on Generation Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
20092010201120122013201420152016201720182019202020212022
EBITDA %age Return
Sc Power EBITDA % return on Total Sales
2009 -2022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf

11. The Supply Business dealing with retail sales to customers doesn’t look abnormal. The market seems
to be very competitive with many loss-making firms folding in recent years. Why did the CMA
concentrate on this? Baffling.

When we look at the Generation Sales the position is markedly different with Scottish Power
47.47%, EDF 48.95% and Centrica 72.84% all earning excess profits in 2022. In 2022 E.On apparently
no longer generate power and won’t fill in the CSS return. RWE’s have removed themselves from
the reporting cycle but remain a major generation business. Centrica earning a 72.48% return means
nearly £3 in every £4 is profit. The Mark-up is nearly 500%. Not even OFGEM or the CMA could claim
3.92%
1.57%
5.84%
-
0.16%
-
1.86%
2.65%
2.37%
4.52%
8.17%
1.45%
0.23%
4.96%
0.18%
4.10%
7.21%
0.07%
1.95%
3.60%
3.01% 3.09%
7.00%
-
0.74%
3.92%
4.34%4.47%
3.68%
2.02%
-
0.12%
3.86%
2.91%
6.98%
3.75%
2.62%
1.91%
2.32%
4.37%
4.74%
2.84%
0.05%
1.18%
-
0.94%
3.69%
2.57%
3.05%
-
1.31%
0.45%
-
1.33%
2.52%
-
0.07%
2.65%
-
0.02%
1.74%
-
0.02%
4.57%
3.75%
0.02%
2.63%
2.33%
-
0.47%
2.24%
0.04%
1.20%
0.74%
-
0.97%
-
2.17%
4.57%
0.81%
-
1.39%
0.05%
-
2.24%
0.00%
-
0.01%
-
8.26%
0.00%
-
1.78%
-
0.74%
0.00%
-
1.71%
-
4.16%
0.00%
1.93%
-
16.02%
0.00%
-
1.11%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
ScPower E.On Centrica EDF RWE SSE
EBITDA %age Return
EBITDA % return on Supply Sales
2009-2022
2009201020112012
2013201420152016
2017201820192020
20212022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf
23.23%
29.89%
25.65%
21.30%
31.99%
63.47%
23.23%
16.70%
28.27%
32.79%
47.17%
61.29%
22.63%
27.84%
29.51%
39.70%
47.42%
54.45%
19.38%
22.69%
35.01%
40.63%
43.35%
50.38%
16.44%
12.84%
22.98%
36.02%
11.26%
52.83%
21.02%
8.77%
19.11%
33.46%
6.37%
23.31%23.82%
18.56%
24.57%
35.92%
9.86%
27.91%
20.68%
15.41%
22.03%
44.45%
11.59%
31.63%31.20%
69.31%
19.34%
25.23%
13.41%
31.10%
39.65%
72.73%
20.82% 20.72%
13.32%
28.71%
70.54%
78.13%
24.42%
26.06%
70.34%
42.78%
73.80%
0.00%
26.15%
30.50%
0.00%
40.45%
67.21%
0.00%
14.73% 13.81%
0.00%
44.50%
47.47%
0.00%
72.84%
48.95%
0.00%
29.20%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
ScPower E.On Centrica EDF RWE SSE
EBITDA %age Return
EBITDA % return on Generation Sales
2009-2022
20092010201120122013
20142015201620172018
2019202020212022
https://www.ofgem.gov.uk/sites/default/files/2023-06/Energy%20companies%27%20Consolidated%20Segmental%20Statements.pdf

12. such a return was normal profit. However my evidence will count for nothing. If a firm adding a
Mark-up of almost 500% says it earns only a 5% return the CMA and/or OFGEM will accept they’re
telling the truth.
We should also consider whether input costs for raw materials are being set by any of the players
through intra-company trading (central group buying) where the cost might be manipulated to
deliver a tax charge in the Parent Company’s country of origin rather than where the profit is really
earned.
The “Big Six” all shared with the Energy and Climate Change Select Committee that they earned 5%
on their Supply business. The Generation business where the money is being made was overlooked
by the Committee. It was also overlooked by the CMA review.
Returns of over 70% on Generation make a mockery of the evidence given to the committee.

We can see above that two of the firms (RWE and E.ON) have stopped submitting CSS returns.
Scottish Power is close to the “no more than 5%” level they claimed at the Energy & Climate Change
Committee and also in subsequent submissions to the CMA Inquiry team.
SSE made a 18.14% EBITDA return in 2022 (2015 - 11.47%). In England and Wales they rely on gas
fired CCGT technology and margins are better than in 2015. Centrica made 10.79% in 2022 (2015 –
4.68%) and EDF made 23.07% in 2022 (2015 - 17.13%). Each firm involved in Generation earned a
higher return on this market segment than on supply and a higher return in 2022 than in 2015.
Pensioners, those with disabilities, people dependent on benefits and those in work but on low
incomes will rightly curse OFGEM for allowing this exploitation and encouraging the firms involved
to carry on regardless. Scotland has some of the highest consumer prices for electricity in Europe.
Firms here are charged far more than foreign firms for interconnection with England. We can solve
this with independence and only with independence. High time we voted for it.
(Cover photo: Foyers, Loch Ness: https://www.scottish-places.info/features/featurefirst3852.html)
9.47%
7.01%
7.51%
4.16%
1.90%
8.76%9.09%
6.84%
10.02%
12.86%
5.23%
10.73%
8.12%
8.96%
9.90%
15.93%
6.37%
10.90%
6.11%
6.72%
9.80%
16.03%
8.15%
10.57%
7.63%
4.92%
6.24%
14.68%
5.66%
9.87%
12.07%
4.73%
5.93%
15.99%
3.36%
10.42%
12.12%
5.85%
4.68%
17.13%
2.52%
11.47%
7.85%
5.52%
3.40%
17.47%
3.04%
11.79%
8.96%
6.72%
3.26%
11.07%
3.92%
13.46%13.68%
5.54% 5.34%
8.83%
3.57%
10.41%
13.10%
5.94%
4.15%
7.38%
1.97%
15.96%
19.10%
-
1.39%
3.47%
9.16%
0.00%
21.75%
8.53%
0.00%
-
0.09%
2.97%
0.00%
21.59%
5.25%
0.00%
10.79%
23.07%
0.00%
18.14%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
ScPower E.On Centrica EDF RWE SSE
EBITDA %age Return
EBITDA % return on Total Sales
2009-2022
2009201020112012
2013201420152016
2017201820192020
20212022
https://www.ofgem.gov.uk/sites/default/files/2023-