In an agreement with Liz Truss’ administration, Centrica intends to voluntarily curb its earnings in order to lower British citizens’ energy costs amid the current cost of living crisis.
The owner of British Gas is eager to agree to a proposal for new, long-term contracts for its energy generating, even if doing so would require accepting shorter-term earnings.
As part of her proposal to freeze prices at £2,500 for two years, Ms. Truss refused to impose a new windfall tax on earnings, prompting accusations from Labour and the Lib Dems that she is side with the energy oligarchies.
However, a key component of the incoming prime minister’s strategy is to persuade energy producers like Centrica to cease linking the cost of electricity—which is then sold to suppliers—to rising wholesale gas prices.
Chris O’Shea, the chief executive of Centrica, said that discussions with Whitehall officials were still underway and that his business wanted to be the “first company” to agree to a new pricing deal.
“We are in this business for the long term.“ According to Mr O’Shea, “We’re not in this business to maximise our profit this year.”
“We are obviously in this business to create value for all of our stakeholders, customers, country [and] colleagues,” the Centrica CEO said. “But it’s not about maximising this year’s profits; it’s about having a long-term sustainable business.“
Because of the way the system is now set up, the price of gas, which has skyrocketed since Russia’s invasion of Ukraine in February, closely influences the price of all power.
The idea to allow nuclear power plants and renewable energy producers to sign up for new “contracts for difference” (CfDs) to sell their electricity at cheaper rates in return for long-term fixed pricing was initially put out by the UK Energy Research Centre.
The strategy, however, has faced opposition. According to the research tank Resolution Foundation, there is a chance of “delaying but locking in” the enormous profits made by the power plants.
The same concern has been raised by Labour. Ed Miliband, the shadow minister for the environment, said that long-term contracts would just “lock in” profits for electrical firms for years to come, foreseeing future household prices that would be higher than required.
He claimed on Thursday that What Energy UK have said is we’ll accept slightly lower prices now, so we can have much higher prices over the following 15 years. This would be a terrible deal for the British people, a terrible deal for billpayers“
The top executive of Centrica said that helping to reduce costs immediately was in the company’s best interests. According to Mr O’Shea, “We provide energy to more than eight million households and companies in the UK; if they can’t pay their energy, we don’t have a viable company.”
Hours before the Queen passed away on Thursday, Ms Truss made the energy price guarantee announcement. It would limit all home expenditures at £2,500 for two years and is anticipated to be paid for with significant borrowing. Businesses will also get comparable help for at least six months.
No 10 has said that it does not think the policy would be affected by the time of mourning and confirmed on Friday that it would not need MPs voting on emergency legislation.
In order to guarantee that the energy providers are prepared to implement the new unit price limit on October 1st, ministers want to sign standard contracts with them within the next few weeks.
Chancellor Kwasi Kwarteng still has to establish a date for announcing the specifics of his emergency package. He has yet to specify how much it will cost the government to subsidise energy providers for increased wholesale rates.