Energy profits: perception vs reality

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Today we announced our financial results for 2012 – our CEO Paul Massara wrote a blog about energy company profits which you can read about here.

We read all about profits in newspapers, and the financial results of big companies draw headlines across the press. But when big businesses talk financial results, they talk in big numbers – millions, and hundreds of millions. That leads to the perception that big firms – like energy companies – are ripping off consumers, making unreasonable profits.

So we asked our customers and the general public about perceptions of profit in the UK. We asked 2,000 people how much profit they thought big companies across different industry sectors make – and we found that more than half (51%) thought companies made more than they actually do; and only 13% either correctly estimated (or under estimated) how much they made.

Banking and energy are the sectors that consumers believe make the most profit, with 70% and 58% respectively of those people asked ranking these industries in their top five most profitable sectors. Meanwhile, retail, the UK’s second most profitable sector in reality, was highlighted by less than one in five consumers.

The survey we did showed that consumers thought npower’s profit margin was 40% – almost ten times more than we actually make. The reality is that the profit we made last year was 5% of our total income – 95% was spent on the huge costs involved in generating and transporting the UK’s electricity and gas, and supplying homes and businesses across the country.

You’d expect energy company profits to be much less than technology firms, or companies selling products or services that consumers choose to have in their homes – energy is an essential product – but we actually make the same level of profit on an energy bill as many supermarkets make on your every day food shop – about £5 in every £100.

And that profit is spent paying investors back the billions of pounds that have been spent on building new power stations, renewable technology, and energy efficiency improvements to help ensure clean and affordable energy for the UK.

It comes as no surprise that UK consumers believe the energy sector is one of the most profitable industries in the UK – however, this research shows that there is actually a stark contrast between perception and reality that needs to be addressed. It’s not just the profit margins that are over-estimated; it’s also that there needs to be better understanding as to how that profit is used – repaying investors the billions that were put in to keep Britain’s energy infrastructure fit for the 21st century.

We need to tackle the confusion that surrounds energy so that people understand what really makes up an energy bill and just how much of it an energy company like npower can really control – like in this breakdown of an energy bill here. It’s all part of the open and honest conversation we want to have about energy.

 What do you think about the research? Do the findings surprise you? Have your say in the comments below.

 

 

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