Centrica launches £250mn buyback as energy prices drive up profit

Centrica has risked stoking further controversy over energy companies cashing in on high wholesale gas and power prices as it launched a £250mn share buyback, its first since 2014.

The energy group behind British Gas said on Thursday that robust performances from its electricity generation assets, gas it sells from fields in the UK North Sea and its energy trading arm meant full-year profit was likely to be towards the top end of analysts’ expectations.

Analysts had forecast Centrica to deliver earnings per share of between 15.1p and 26p.

Fellow British utility National Grid — which owns electricity network infrastructure — on Thursday also upgraded its earnings expectations for the full financial year after its underlying operating profit rose 50 per cent in the six months to September 30.

National Grid said it had provided £325mn in short-term loans to two of its UK final salary pension funds in October amid the gilts crisis, although it insisted they had not been close to collapse. The loans would allow the schemes additional time to liquidate assets “in an efficient manner in order to restore their significant liquidity buffers”, the company said.

The UK government has been facing calls from opposition politicians to raise windfall taxes on energy companies that are benefiting from record wholesale gas and electricity prices, while British households grapple with the cost of living crisis. Higher profit forecasts from Centrica and National Grid follow a string of bumper third-quarter earnings announcements in recent weeks from oil and gas producers, including BP and Shell.

Centrica is in a particularly tricky position as it produces electricity and gas but is also Britain’s biggest supplier to households, which are facing the biggest squeeze on their income for a generation, fuelled by higher energy bills. The company controversially resumed dividend payments this year for the first time since 2020.

It said on Thursday it would repurchase up to 5 per cent of its issued share capital over the next 3 to 4 months at an expected cost of about £250mn.

Centrica acknowledged the “difficult environment facing many people” as they struggled with high energy bills. It said it would set aside another £25mn to help customers this year on top of £25mn already committed.

National Grid’s results were buoyed by a number of factors including contributions from a new subsea electricity trading cable between Britain and Norway, which opened in 2021. National Grid is now forecasting growth in earnings per share of 6-8 per cent; it had previously said profits this year would be “broadly flat”.

Energy network companies such as National Grid are regulated by Ofgem and have not yet come under the scope of any windfall taxes. About 10 per cent of consumer energy bills goes towards maintaining Britain’s energy infrastructure and is distributed to companies including National Grid.

National Grid’s chief executive John Pettigrew told the Financial Times it was trying to be “very conscious of the affordability issues for UK consumers” but insisted that for every £1 in profit it was generating, it was investing about £2 to upgrade energy infrastructure to accommodate more renewables such as wind and solar. “The way out of this energy crisis is that we invest in networks to allow the connection of renewable generation,” Pettigrew said.

Chancellor Jeremy Hunt is expected to announce an increase in the UK’s windfall tax on oil and gas producers when he delivers his Autumn Statement on November 17. He has also been examining extending the levy to electricity generation companies.