Chief executive Chris O’Shea said he wanted Centrica to be the “first company” to sign new, renegotiated contracts with the government to generate electricity amid a row over windfall profits. As part of Liz Truss’ £150bn freeze on energy bills, renewable and nuclear power producers will be forced to supply electricity below current market prices – but the new Prime Minister has refused to impose a windfall tax on them. Ministers plan to “negotiate” with generators of older wind, solar and nuclear power contracts, which have benefited from windfalls as the price of natural gas has soared, to persuade them to switch to newer, less lucrative deals, the which lock in lower prices in exchange for guaranteed long-term income. As well as being the UK’s largest supplier of gas and electricity to households through British Gas, Centrica is also a major producer through its 20% share of Britain’s nuclear power plants. O’Shea said Centrica was willing to switch the five nuclear plants to new type contracts. He said he was still willing to sign long-term contracts with the government for Centrica’s North Sea gas fields, which are not covered by the initiative and are already subject to the windfall tax announced earlier this year by then-chancellor Rishi Sunak. . North Sea oil and gas extraction does not currently receive subsidies. O’Shea said he had discussed the idea, backed by the Energy UK industry, with the government and talks were ongoing. “We’re in this business for the long haul. We are not in this business to maximize our profits this year,” he said. Energy companies have backed ‘contracts for difference’ (CfD) proposals, which give investors certainty about the levels of returns they can get, potentially years after the energy crisis has subsided. Chris O’Shea said Centrica was “in this business for the long haul”. Photo: Gary Calton/The Observer However, the Resolution Foundation has warned that the policy risks “delaying but locking in” windfalls. There are concerns that the government’s negotiating team, led by former vaccine task force chief Madelaine McTernan, is in a weak position as it will have to persuade producers to forgo high short-term prices. O’Shea declined to say what percentage of its profits he was willing to give up or how much the company hopes to receive from the government. He told the Guardian: “Sometimes if you go to the government and they suggest you get a lower price, they look at you like there’s something else for you. “We are obviously in this business to create value for all our shareholders, our customers, our country [and] Colleagues. But it’s not about maximizing this year’s profits. this is a long-term sustainable business. “We supply more than 8 million homes and businesses in the UK with energy – if they can’t afford their energy, we don’t have a viable business. And so when you think about it holistically … if we put in something like a CfD regime for existing assets, then, God forbid, if that happens again and we see prices go where they’re going, there’s an automatic adjustment mechanism.” O’Shea said the “risky” nature of commodity markets could be hanging over investments. “If you put a floor on the price that can be achieved, you eliminate a huge amount of risk,” he added. Centrica holds a 20% stake in Britain’s nuclear fleet through a joint venture with France’s EDF, which is also understood to support the proposals. The scale of the windfall from rising gas prices was highlighted in July when Centrica reported a first-half operating profit of £1.3bn and handed over £59m to shareholders. The company said it had seen an 11% increase in volumes of nuclear power produced in the first half of 2022. It said the price achieved for nuclear power had risen from £46.5 per megawatt hour in 2021 to £110.4/MWh . The company posted an increase in half-year profits from the division which included its exploration and production and nuclear businesses – reaching £906m, up from £75m. O’Shea said alternative proposals to cap wholesale gas prices could “massively distort the market and have perverse consequences”. Asked if he supported the CfD’s proposal to fend off a potential windfall, O’Shea replied: “A windfall by its nature is one-off. It does not fix the market structure. We are trying to solve the same issue in a sustainable way.” Last month British Gas announced it would donate 10% of its profits to help its poorest customers manage rising gas and electricity bills for the “duration of the energy crisis”.
