Commodities trader’s unit benefited from turmoil in electricity market last year
Vitol’s UK electricity generation company almost tripled profits last year on soaring electricity prices, underlining the financial boost to power generators provided by extreme market turmoil.
VPI, which now owns five power stations across Britain, made adjusted profits of £644mn, compared with £222mn in 2021, according to accounts disclosed by the company to the Financial Times. Adjusted profits exclude changes in the value of contracts for energy bought in advance to manage supply commitments. Unadjusted profit soared to £1.3bn in 2022 compared with £86.1mn in 2021.
Wholesale power prices in Britain surged last year owing to gas supply disruptions connected to Russia’s war in Ukraine, as well as lower electricity output in France, which typically exports electricity to the UK.
The higher prices helped push up energy bills, with the price cap governing British household bills climbing to £4,279 in January 2023, compared with £1,277 in October 2021.
Vitol’s power company was founded in 2013 when the commodity trader bought an electricity station in Immingham, north Lincolnshire, from Phillips 66.
It snapped up four gas-fired power stations from Drax in January 2021, giving it a combined portfolio of about 3.5 gigawatts, enough to power about 5mn homes.
Its fleet can respond quickly to demand, for example ramping up if there are lulls in supply from wind turbines or other intermittent sources.
The company drew scrutiny last year after a Bloomberg investigation said that traders at firms including VPI would inform National Grid they were shutting down power plants ahead of periods of tight supply, only to secure higher prices in the market for “back-up” supplies.
Britain’s energy regulator, Ofgem, also investigated behaviour in the market and said last week it found evidence of some electricity generators switching off during winter afternoons, only to offer to switch back on at a “greatly increased price” in the back-up market.
Ofgem did not name any companies involved, but has introduced new licence conditions to clamp down on the practice.
VPI said it was a “responsible provider of generation capacity to the grid” and “complies with all its delivery obligations and all applicable regulation”.
A spokesman added: “[VPI] has an open and transparent relationship with the system operator and relevant regulators. Any suggestion otherwise is incorrect.”
VPI declined to comment on the power prices it had achieved last year. Its results for 2022 were also flattered by the Drax assets, which it did not own in January 2021.
Rival firm SSE, which owns similar gas-fired power station, reported a 244 per cent increase in adjusted operating profits for its gas-fired power station arm for the year ending March 2023, climbing to £1bn.
Vitol said it was “very aware of the challenges facing households” and highlighted plans to invest more than £1.5bn over the next five years.
“VPI’s focus must be to deliver the reliable power which people and businesses need today and invest in the new power we shall all need tomorrow,” the spokesman added.
“Energy systems need additional capacity and technology as we move to net zero.”
Source: Financial Times
