The headline that always makes the news
Every time energy bills go up, a familiar story follows: energy company posts record profits. Centrica earns billions. Shell makes a mint. Cue the outrage. And honestly, the outrage is understandable — when people are choosing between heating and eating, seeing the word "profit" next to an energy company feels like a personal insult.
But here's the thing. The companies making those profits aren't usually the ones sending your Direct Debit. And the actual business of buying energy wholesale and selling it to you — what Ofgem calls the "supply" segment — is a much thinner, more precarious operation than the coverage suggests.
This matters, because if we misdiagnose the problem, we end up angry at the wrong people — and miss what's actually worth being angry about.
What Ofgem's own data actually shows
Since 2009, Ofgem has required major energy suppliers to publish what are called Consolidated Segmental Statements (CSS) — annual accounts that separate out the supply business (selling gas and electricity to households) from the generation business (owning power stations and gas assets). From 2024 this was extended to a broader range of suppliers.
This distinction matters enormously. A company like Centrica owns both British Gas (which supplies your home) and significant upstream gas production assets. When gas prices spike, the upstream business can make extraordinary profits — while the supply business is simultaneously losing money serving customers at capped prices.
⚠️ Headline "billions in profit" figures almost always refer to the whole group — not the retail supply business serving your household. Ofgem's segmental data strips these apart, which is why it tells a very different story.
What does the supply segment data show historically? Supplier supply margins have often been wafer-thin or negative. During the 2021–23 energy crisis, the supply businesses of most major retailers were loss-making. That's not a fringe claim — it's why over 30 energy suppliers collapsed entirely.
That £44 EBIT (Earnings Before Interest and Tax) allowance tells you what Ofgem considers a fair regulated profit — it's the amount baked into the price cap to allow suppliers a reasonable return on a typical dual-fuel customer per year. To put it in perspective: that's roughly the cost of a Netflix subscription.
Where your £1,641 actually goes
The April–June 2026 price cap for a typical dual-fuel direct debit household is £1,641 per year. Here's how Ofgem breaks that down in their own data:
Your £1,641 annual bill — the official Ofgem breakdown
Source: Ofgem price cap breakdown, January–March 2026. Figures approximate due to rounding.
The supplier's regulated profit allowance — £44 — is less than 3% of your bill. The vast majority goes to pay for the actual gas and electricity, the pipes and wires that deliver it, and a growing pile of policy costs. None of that ends up in a supplier's pocket.
The bad debt problem — and why it's eating into thin margins
Here's the part that rarely makes the news. Energy suppliers operate under a unique set of rules that make them fundamentally unlike most businesses. They cannot run credit checks before signing you up. They cannot disconnect you for non-payment (except in very controlled circumstances). And they are mandated by Ofgem to extend credit to customers who are struggling.
The consequences of this are now significant. By Q3 2025, domestic customer energy debt had reached £4.48 billion — the twelfth consecutive quarterly increase. Around 3.6 million customers are in debt or arrears. Nearly three-quarters of that debt is owed by customers with no repayment arrangement in place.
Ofgem has responded by building debt-related costs directly into the price cap. As of 2024, this amounts to roughly £39 per year for a typical direct debit customer — costs that are spread across all payers to compensate suppliers for the bills they write off. Standard credit customers pay more: around £130 per year of their bill goes to covering others' unpaid debts, reflecting the higher credit risk that payment method carries.
💡 In plain terms: When a customer doesn't pay, it's not just absorbed by the supplier. The cost is eventually distributed across everyone's bills through the price cap mechanism. Your bill includes a contribution towards the energy debt of other households.
This is a structural feature of the market, not a corporate choice. The warm spring of 2025 combined with rising debt led Ofgem's own State of the Market report to note that domestic sector profitability had been squeezed — with projected 2025 profits of just £0.27 billion across the entire sector, down from £0.88 billion in 2024.
Where the real money is (and it's not your supplier)
So if retail supply margins are thin and battered by bad debt, where do the eye-watering profits live? Three places:
1. Upstream gas and power generation
Companies like Centrica, Shell, and BP have significant interests in North Sea gas extraction and power generation. When wholesale gas prices spike — as they did catastrophically in 2021–22 — these assets can generate extraordinary returns. The supply arm of the same group may simultaneously be losing money on fixed tariffs. The consolidated group profit looks enormous; the retail segment looks like a disaster. Ofgem's CSS data separates these out, which is why it's such a valuable document.
2. Network companies
National Grid, Scottish Power Networks, UK Power Networks and others own the physical infrastructure that delivers your energy. These businesses operate under Ofgem-regulated price controls (RIIO) and are guaranteed a set return on their investment. As we've covered in our RIIO-3 analysis, transmission charges are set to rise significantly through 2031 as the grid is upgraded — and that cost flows directly through your bill regardless of who your supplier is.
3. Renewable energy generators
Offshore wind and solar farms can earn substantial returns when wholesale electricity prices are high. These are partly managed through the Contracts for Difference (CfD) scheme, which claws back profits above a "strike price" — but the system is complex, and the cost of CfD payments flows through your bill under policy costs.
| Part of the energy system | Profit potential | Shows in your bill as | Regulated? |
|---|---|---|---|
| Retail supplier | Low / thin | Operating costs + EBIT | Price capped |
| Gas producers | High when prices spike | Wholesale costs | Energy Profits Levy |
| Power generators | Varies | Wholesale costs / CfD | Partial |
| Network companies | Guaranteed return | Network charges | RIIO price control |
The legitimate complaint: the loyalty penalty
Now, before you feel too much sympathy for suppliers, there is a real and legitimate criticism — it's just more nuanced than "they make billions."
The market is structured in a way that rewards engaged customers and extracts value from disengaged ones. Suppliers compete fiercely for switchers by offering fixed deals well below the price cap. The Q2 2026 cap is £1,641, yet the cheapest available tariffs continue to track materially below that level. That gap has to be funded somewhere.
The somewhere is: customers who don't switch. The price cap protects them from truly egregious charges, but still allows suppliers to earn their full cost-recovery and profit allowance on these customers while subsidising acquisition costs for new ones. This is a distributional effect within the supplier's book — and it means the act of switching has genuine financial value, not just for you, but for market dynamics overall.
📌 The real issue isn't supplier profit margins — it's market structure. Thin aggregate margins mask significant redistribution from loyal customers to switchers. Being an engaged customer doesn't just save you money; it removes your contribution to this cross-subsidy.
Why "good" customers are genuinely valuable — and increasingly targeted
Here's something worth understanding from the supplier's perspective. When margins are thin and bad debt is at record levels, the economics of a customer base become very stark. A customer who pays by Direct Debit, doesn't carry debt, uses energy predictably, and stays for multiple years is a fundamentally different proposition to a high-risk account.
What makes you a "good" customer in a supplier's eyes
With £4.48 billion in sector-wide debt, suppliers are increasingly focused on customer quality — not just volume. Here's the breakdown that matters to them:
This is why fixed tariffs are priced at a discount to the cap: suppliers are willing to take slightly lower headline revenue in exchange for the certainty of a customer who has committed, who pays on time, and whose energy use they can plan their wholesale hedging around.
The debt crisis also directly affects the market's ability to offer cheap deals. When a large chunk of the sector's costs are being absorbed through debt write-offs — and those costs flow back through Ofgem's price cap allowances — there's less headroom for competitive tariffs. Everyone's bill carries a small but growing contribution to the sector's bad debt problem.
The crisis of 2021–22: the ultimate proof
If energy suppliers had truly been extracting high margins from households for years, they would have had reserves to weather the 2021–22 wholesale price spike. Instead, more than 30 suppliers collapsed in rapid succession. The ones that survived did so through a combination of hedging strategies, access to capital markets, and — in some cases — group-level support from upstream assets.
Ofgem itself has acknowledged the market's fragility and has since introduced stronger financial resilience requirements — including minimum capital requirements and restrictions on using customer credit balances to fund operations. The fact that such measures were needed tells you something about how thinly capitalised the supply business was.
💡 The energy crisis wasn't a story of fat suppliers getting richer. It was a story of a low-margin business model failing when exposed to a commodity price shock it couldn't absorb — and the cost of those failures landing on every remaining customer's bill (about £83 per household, per Ofgem).
What this means for you
Understanding where supplier margins actually sit has a few practical implications:
- Switch regularly — the £200 gap between the cheapest available tariff and the price cap is real money, and it's funded by people who don't switch. You're not just helping yourself; you're participating in the competitive mechanism that keeps the market honest.
- Pay by Direct Debit if you can — it's genuinely the cheapest payment method, and part of the reason is that it reduces the supplier's debt exposure. The ~£90 premium that standard credit customers pay for debt-related costs reflects a real cost.
- Get a smart meter — accurate billing reduces debt buildup and billing disputes, both of which have systemic cost consequences that flow through to everyone.
- Be appropriately sceptical of group-level profit headlines — when a company like Centrica reports billions in profit, ask whether that's the supply business or the upstream gas business. Ofgem's CSS data is public and worth understanding.
- Focus criticism where it's warranted — the real structural issues are in wholesale price volatility, rising transmission network costs (see our RIIO-3 analysis), and the growing debt burden rather than retail supply margins.
None of this is to say suppliers are beyond criticism. The market structure does favour engaged customers over loyal ones in a way that has real distributional consequences. And the forced prepayment meter scandal of 2023 was a genuine regulatory failure. But the notion that energy suppliers are simply extracting enormous profits from households — while technically true at the group level for some companies — misunderstands where the money actually sits in the supply chain.
The companies making the serious money are producing the gas, generating the electricity, and owning the wires and pipes. Your supplier, in most cases, is the thin slice in the middle — under price cap constraints, absorbing bad debt they can't always recover, and working on margins that would make most industries wince.