UK Centrica to Hit Targets Despite Setbacks

UK dominant retailer Centrica expects to achieve its 2018 financial targets despite problems offshore and with its nuclear plants, it said November 22. Further risks loom however, with the retail price cap for standard variable tariffs, and the scrapping of payments due to generators under the capacity mechanism contracts.

Centrica said it was making "good progress" on new propositions for customers; further cost efficiencies; and in re-positioning the UK home energy supply business in advance of the introduction of a default tariff price cap. For the full-year 2018 it expects adjusted operating cash flow in the range of £2.1-£2.3bn ($2.7bn-$2.9bn); net debt within the £2.5-£3.0bn range; and in-year efficiency delivery of over £200mn.

Its upstream joint venture, Spirit Energy (69% Centrica), is forecast to produce about 47.5mn barrels of oil equivalent (boe) this year, down from around 50mn boe at the time of the interim results, owing to unplanned outages and operational issues in both operated and non-operated fields. Spirit Energy production next year is  expected to be at broadly similar levels to 2018. 

Output from its nuclear assets was hit by extended inspections and outages at the Hunterston B and Dungeness B power stations, cutting Centrica’s share of expected full-year nuclear output by around 0.2TWh since the interim results.

Further losses are expected early next year, with the long-awaited price cap on the standard variable tariff. Centrica said that the regulator Ofgem’s revision to the methodology for calculating supplier wholesale and hedging costs during the transitional period, and its own inability to retrospectively mitigate this change, is expected to result in a one-off negative adjusted operating profit impact of around £70m in the initial period of the cap, in the first quarter of 2019.

Centrica, along with many other generators, has also been hit by a new threat: the suspension of capacity payments for having plant available. Following a European court ruling which overturned initial approval by the European Commission, the UK government has had to cancel these as they discriminated, the court ruled, against demand-side response schemes to manage power shortages. However, as a buyer of wholesale power it also benefits from the scrapping of these mandatory payments.

Centrica said it was "awaiting further updates from the Department for Business, Energy & Industrial Strategy in order to determine the full implications for the capacity contracts in place for our nuclear, battery and gas-fired generation assets, and for our UK energy supply businesses and the associated allowances for capacity market charges".