Centrica profits rising as energy retailers feel the heat over tariffs

Mounting anger over energy pricing threatens to overshadow an expected rise in profits at Centrica, as jittery investors fear new restrictions on the company.

The British Gas owner is expected to reveal full-year earnings of around £950m on Thursday, up from £891m in 2015, following a £200m cost-cutting programme.

Ahead of the results Centrica will unveil a £100m five-year investment plan for its new tech-focused business arm.

Centrica Innovation will invest in technology start-ups which help cement its lead on “smart” internet-connected thermostats and energy meters. 

However, the company’s success could be soured as regulatory pressure mounts on the energy retail market, which remains dogged by criticism of unfair pricing and a lack of competition.

The Government’s latest crackdown, a cap on tariffs for pre-pay households, could wipe as much as £80m from Centrica’s 2017 earnings, analysts predict.

A more dramatic political hit could emerge following the outcome of the Government’s forthcoming green paper, which analysts at Jefferies have warned could could signal major tension between the Government and energy companies over the first half of the year.

Analysts at Barclays added: “The Government has been reported to be considering what may be a very harsh cap for companies’ standard variable tariffs in a green paper due to be published by April.”

Centrica’s retail business is particularly vulnerable to government efforts to protect customers from paying higher bills because a heavy proportion of customers remain on standard tariff rather than switching to cheaper fixed rate deals. Meanwhile, pre-pay accounts  account for a fifth of its British Gas customers.

A heavy-handed approach from Government and the regulator could be on the cards after three of the UK’s six biggest suppliers defied warnings from Ofgem to avoid a tariff hike by lifting customer bills.

So far Centrica has been able to absorb the rising costs from government schemes and a recovering wholesale energy market by promising to hold bills steady until August, even as rival Big Six companies increase tariffs.

Scottish Power lifted its standard dual fuel tariff by 7.8pc shortly after a tariff hike of 15pc from npower earlier this month. Meanwhile EDF Energy is planning to increase its electricity prices by 8.4pc and its dual fuel tariff by 1.2pc.