Why do energy companies make so much money during an energy crisis?

While cash-strapped British families spent a winter worrying about being able to pay their mounting bills, energy giants raked in “obscene” profits.

British gas owner Centrica has tripled its profits to a staggering £3.3 billion in 2022 as soaring energy prices have left millions of Brits struggling to pay their bills.

The huge crowd dwarfed the company’s 2021 results, which saw the utility post £948million in profits.

Centrica is the latest energy giant to announce huge gains, with both BP and Shell reporting record profits over the past year, with BP raking in £6.9bn in the three months to June while Shell raked in even more and a staggering £9.43bn recorded in profit.

Here, MailOnline breaks down why energy giants are making such staggering profits while families struggle to pay their skyrocketing bills.

British Gas owner Centrica’s results today beat the company’s previous profit high of £2.7 billion set in 2012

Why do energy companies make so much money?

The staggering rise in profits was fueled in part by the dramatic rise in oil and gas prices, which have soared due to the war in Ukraine.

Gas prices on world markets have selectively increased six-fold amid the political fallout from Russian President Vladimir Putin’s invasion.

The war, which began less than a year ago, resulted in a curtailment of Russian gas, driving up prices.

The surge came at a time when gas supplies had already been hit following a post-pandemic demand surge. Countries in Asia and Europe consumed a significant amount during the long winter of 2021, which helped push up prices ahead of the Ukraine war.

The possibility of gas supply problems then drove up wholesale prices, causing retailers to hike their fees and adding millions to household electricity bills.

Centrica, the UK’s largest domestic electricity and gas supplier with more than 10 million customers, benefited from the price hikes.

It had strong performances in its North Sea production and energy trading, as well as its 20% stake in the UK’s five nuclear power stations.

But soaring profits from energy companies following the outbreak of war in Ukraine have prompted accusations of profiteering.

So how much money are energy companies making?

BP made £23 billion in profits over the same period, up from around £10.7 billion in 2021

All of the big energy giants have seen profits skyrocket over the past year.

In 2022, Shell took in £32.2 billion – the highest in its 115-year history.

Rival BP posted profits of £23bn over the same period, up from around £10.7bn in 2021.

BP has insisted its UK operations accounted for less than 10% of its global profits, while Shell said UK customers accounted for around 5% of its sales.

Meanwhile, British Gas owner Centrica reported full-year 2022 profit of £3.3billion – more than triple the £948million it earned in 2021.

How was the reception of the breathtaking winnings?

In a word: “Frosty”.

Activists branded the incredible sums of money raised by energy giants as “obscene”.

Disability organization Scope said people with disabilities who have struggled to pay for enough energy face a grim situation.

“It’s obscene that energy companies continue to make massive profits,” said Tom Marsland, the charity’s policy manager.

Charities have branded the energy giants’ soaring profits as “obscene”. It comes as millions of Britons grapple with mounting household bills (pictured by a model).

In 2022, Shell posted a profit of £32.2 billion – the highest in its 115-year history

“Life costs a lot more when you are disabled. We are inundated with heartbreaking phone calls from disabled people who haven’t eaten in days, who can’t afford the energy to charge wheelchairs and stairlifts, but who still run up huge energy debts.”

Climate group Friends of the Environment has also slammed energy giants for making huge profits while “fueling the energy and climate crisis”.

Sana Yusuf, an activist with the group, said unexpected taxes imposed on companies by the government should be “tougher”.

“The new Secretary of Energy Security and Net Zero must support growing calls for a tougher windfall tax on the excessive profits of fossil fuel companies like Centrica to fund the investments in insulation and domestic renewable energy needed to meet the bills to lower and reduce emissions,” Sana said.

Politicians have also lashed out, with Labour’s Shadow Climate and Net Zero Secretary Ed Milliband saying: “It cannot be right that Rishi Sunak’s Conservatives refuse to introduce a proper windfall tax while oil and gas giants are enjoying the windfalls of the… War reaping would make them pay their fair share.’

What is the government doing about all of this?

The government has announced an unexpected tax that acts like an additional levy imposed on companies with huge profits.

The new tax is aimed at companies profiting from something they weren’t responsible for – for example the war in Ukraine, which is driving up prices.

As chancellor, Prime Minister Rishi Sunak introduced the 25 percent “energy profit levy.”

Then the current Chancellor, Jeremy Hunt, said in his fall statement that this would increase to 35 percent from January 2023 and run until March 2028.

Mr Hunt said the new tax would help raise £40billion over the next six years.

How much will the energy companies pay then?

BP said it would pay around £583m in windfall tax for 2022. While Centrica claimed it would pay around £1billion in taxes from its £3.3billion profits in 2022.

Shell first said it did not expect a windfall tax for 2022, claiming its North Sea investments meant it was deemed not to have made any UK profits.

But earlier this month the company said it would pay £108m for 2022 – and that it was expected to pay a larger sum of £400m for 2023.

Source: | This article originally belongs to Dailymail.co.uk