British Gas has recently reported some of the largest profits ever. Yet, consumers are faced with increasing energy prices each and every year. In order to understand the process of profits in the gas industry and how they are applied by the companies, it is important to evaluate British Gas, their processes and the outcome of the money generated from these large profits.

British Gas

British Gas, a subsidiary of energy group Centrica, the biggest UK supplier of energy to residential customers has reported profits of £571m compared with £95m last year. This follows an unpopular price increase to customers of 15% as they passed on higher wholesale energy prices caused by the declining production in the North Sea. Consequently British Gas has had to import gas which is linked to the crude oil costs, now at a record level of $100 – a barrel. In addition, the costs of transporting gas through the European pipe network have been soaring.

Centrica said that wholesale gas prices fell in the first half of 2007 and this accounted for the profit despite their having passed on some of the cost saving to customers. Sam Laidlaw, chief executive of British gas explained that the profits would be used to fund £1bn a year investment in new gas generating plants and wind farms to meet government clean energy targets.

British Gas has invested in Ceres Power Holdings boiler technology which it hopes will reduce household emissions by 50%. The new boilers are powered by fuel cells which produce significantly less CO2 per year than standard boilers and it is claimed that this will cut the UK’s domestic emissions by the equivalent of eight power stations. The new British Gas boilers effectively generate electricity directly in the home obviating the need to transport electricity through the grid which is less efficient due to wastage. The Ceres fuel cell looks like a stainless steel CD case and stacked together make a powerful generator. It is anticipated that use of this new boiler will save households 25% per year on their energy bills.

Sam Laidlaw, CEO of Centrica, has recently said:

“Fuel cell technology has the potential to transform the domestic central heating market, enabling our customers to generate cheap, reliable and low-carbon electricity in their own homes. This agreement with Ceres Power will help us deliver our strategy of investing in low carbon technology development.”

In addition British Gas has been investing in wind farms to the tune of £300m so far this year and aim to increase this to £3bn over the next few years. Centrica already own off shore wind farms in Scotland and Lincolnshire but the cost of constructing and linking them to the national grid is about three times as expensive as building a traditional power station.

Sam Laidlaw has also said: “As the UK’s greenest energy supplier, this investment underlines our commitment to supplying British Gas customers with an increasing proportion of renewable electricity in the years ahead. Together with our existing gas fired generation and clean coal options, our investments in wind power will play a real part towards helping the UK move towards a low carbon energy mix.”

British Gas, Britain’s largest residential electricity supplier with 23% of the market, boasts the lowest carbon intensity of any major energy supplier and this new investment will consolidate its position. British Gas has been making strides to reduce energy over the long term by investing their profits in energy saving technology in the short term. While energy costs are currently high, renewable and alternative energy sources could mean better prices in the future.

British Gas partnered with Ceres Power back in 2005 and have been busy developing a fuel cell boiler, also known as a Combined Heat and Power (CHP) boiler which will not only heat your home but also generates electricity.

Conventional boilers convert gas into heat by burning it, the CHP unit works in a very different way by passing natural gas though a fuel cell which creates heat and electricity via a chemical process. The technology is not new but it’ll be the first time it’s to be used on large scale in UK domestic households.

British Gas is currently testing the unit in 30 UK homes and predicts the unit to be commercially available by 2010. Baxi may beat British Gas to it after recently launching their Ecogen CHP boiler which should be available early next year.

The new fuel cell CHP boilers have the potential of producing more electricity than required which could provide an opportunity for householders to sell the electricity back to British Gas. Smart Planet put this question to British Gas which said they had not yet decided if they would buy back unused energy.

British Gas are estimating that average annual savings could be as much as a quarter off a household gas and electricity bill using a modern high efficiency condensing boiler. The price of the new boiler has not yet been decided but will apparently be only slightly more than a modern condensing boiler with a payback of around 5 years.