British Gas owner wants to cap profits in government deal over energy bills

Centrica keen to be first company to agree deal to lower price of electricity sold on to suppliers

Centrica is planning to voluntarily cap its profits in a deal with Liz Truss’s government to help cut Britons’ energy bills during the cost of living crisis.

The British Gas owner is keen to sign up to a plan for new, long-term contracts for its electricity generation which would mean accepting lower profits in the short term.

Ms Truss is accused by Labour and the Lib Dems of siding with the energy giants after refusing to impose a new windfall tax on profits as part of her plan to freeze bills at £2,500 for two years.

But part of the new prime minister’s plan is to get power generators like Centrica to agree to stop pegging the price of electricity – sold on to suppliers – to soaring wholesale gas costs.

Centrica chief executive Chris O’Shea has said he wants to be the first company to sign up to a new price contract, saying talks with Whitehall officials were ongoing.

“We are in this business for the long term. We’re not in this business to maximise our profit this year,” Mr O’Shea told The Guardian.

The Centrica boss added: “We are obviously in this business to create value for all of our stakeholders, customers, country [and] colleagues. But it’s not about maximising this year’s profits; it’s about having a long-term sustainable business.”

The structure of the system at the moment means all electricity is closely pegged to the price of gas, which has rocketed since Russia’s invasion of Ukraine in February.

The UK Energy Research Centre first proposed that nuclear power stations and renewable electricity generators could sign up to new “contracts for difference” (CfDs) to sell their electricity at lower prices, in exchange for fixed prices over the long term.

Energy UK – the body representing many of the big giants in the sector – is now keen on the idea, estimating that it could cut £18bn each year from household and businesses’ energy bills.

But the plan has come in for criticism. The Resolution Foundation think tank said there was a risk of “delaying but locking in” the huge profits of the power generators.

Labour has made the same point. Shadow climate secretary Ed Miliband said long-term contracts would only “lock in” profits for electricity companies for years to come, warning that it will lead to higher than necessary household bills in future.

“What Energy UK has said is we’ll accept slightly lower prices now, so we can have much higher prices over the following 15 years,” he said on Thursday. “This would be a terrible deal for the British people, a terrible deal for billpayers.”

Centrica’s chief executive said it was in the company’s interests to help bring down bills right now. “We supply more than eight million homes and businesses in the UK with energy – if they can’t afford their energy, we don’t have a sustainable business,” said Mr O’Shea.

Ms Truss announced the energy price guarantee hours before the Queen’s death on Thursday. Expected to be paid for with a vast amount of borrowing, it will cap all household bills at £2,500 for two years, while businesses will have similar support for at least six months.

No 10 has said it does not believe the mourning period will have any impact on the policy, confirming on Friday it would not require MPs to vote on emergency legislation.

Ministers aim to sign standardised contracts with the energy suppliers within the next couple of weeks to ensure they are ready to deliver the new unit price cap from 1 October.

Chancellor Kwasi Kwarteng, who has yet to set out how much it will cost the government to subsidise energy suppliers for extra wholesale costs, still needs to find a date to reveal the details of his emergency package.

It had been expected to come on 19 September. But the suspension of parliament for 10 days of mourning could run almost immediately into the recess for party conference season – leaving open the prospect that MPs may not return until 17 October.