British Gas profits halve as warm winter exposes fragile energy supplier business model
When a mild winter can wipe half a billion pounds off your annual profits, you don't have a business model. You have a bet on the weather.
Centrica, the owner of British Gas, posted underlying operating profits of £814 million for 2025, down from £1.55 billion the previous year. The culprit? Warmer temperatures meant customers turned down their thermostats, delivering an £80 million weather-related hit to the household supply division. Earnings in that arm alone dropped 39% to £163 million. Meanwhile, customers migrated to fixed-price tariffs, typically discounted against the standard variable rate, further eroding margins.
The results expose an uncomfortable truth about Britain's energy supply sector: companies tasked with funding the transition to net zero are operating business models with the structural integrity of a bouncy castle. Profits collapse when winter temperatures rise a few degrees or when customers exercise their right to switch to cheaper deals. Yet these same firms are being asked to commit billions to infrastructure that won't generate returns for decades.
The infrastructure dilemma
Centrica has paused share buybacks to prioritise its investment programme, which includes pumping at least £700 million into the business this year. That follows its £1.3 billion stake in the Sizewell C nuclear plant in Suffolk, a 15% investment in critical long-term energy infrastructure.
Chief executive Chris O'Shea framed the decision as "enabling us to prioritise investment that creates lasting value for shareholders, while continuing to deliver the reliable, affordable energy that households and businesses need to power economic growth through the transition". The tension between those two objectives couldn't be clearer. Shareholders want returns. The energy transition demands capital. Mild weather and competitive pricing prevent the profits that might fund both.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, noted that results "aren't going to come cheap or quickly, with between £600-800 million per year set to be invested in the transition out to 2028, which could put a strain on cash flows if returns aren't as high or quick as planned". That's a polite way of saying the maths might not work.
The customer numbers mirage
O'Shea claimed the company had "achieved customer growth across all our retail businesses simultaneously for the first time in over a decade". Dig into the figures, however, and the picture is less rosy. UK and Ireland household customer numbers increased just 1% to 7.96 million, with 7.5 million in the UK specifically. But 91,000 of those came from absorbing the customers of failed suppliers Rebel Energy and Tomato Energy.
Centrica acknowledged that these acquisitions "offset a small decrease in underlying customers". Translation: organic customer numbers actually fell. Growth through competitor failure is hardly a ringing endorsement of market position, particularly given British Gas lost its crown as the UK's largest household supplier to Octopus Energy last year.
This pattern raises questions about the competitive dynamics in the retail energy market. Customers are price-sensitive and switching-savvy. Suppliers can't raise prices without triggering defections, yet they need margin to fund infrastructure and weather the volatility of both commodity markets and actual weather. The result is a race to the bottom that periodically leaves smaller players bankrupt and their customer books swept up by larger rivals.
A facility on life support
The Rough gas storage facility, located under the North Sea off England's east coast, managed to narrow its losses in 2025 and is forecast to break even in 2026. That represents an improvement on previous warnings from Centrica that the site would need urgent government support to remain operational.
A government consultation on the future of gas storage in the UK closed this week, with a decision expected in the first half of the year. The facility's struggle to achieve profitability encapsulates the broader problem: energy infrastructure that serves national resilience and security interests doesn't necessarily make commercial sense. Storage capacity matters enormously during supply shocks, but costs money to maintain during benign periods.
The question is whether government will step in with subsidies or support mechanisms, and if so, whether similar interventions will be needed across other parts of the energy system as decarbonisation accelerates. Britain is attempting a massive infrastructure transition whilst maintaining a liberalised, competitive retail market. Those objectives may prove incompatible.
What the price cap reveals
Cornwall Insight forecast this week that Ofgem's energy price cap will fall 7% when announced next Wednesday, dropping by £117 to £1,641 annually for a typical dual fuel household from April. That follows Chancellor Rachel Reeves' announcement last November that the average bill would be cut by £150 from April through scrapping the Energy Company Obligation scheme.
These are politically popular moves. Lower bills win votes. But they also squeeze the very companies government expects to deliver energy security and net zero infrastructure. Centrica's profit collapse demonstrates that suppliers have limited capacity to absorb cost pressures or revenue hits whilst simultaneously investing billions in long-term assets.
The next decade will determine whether Britain can square this circle. Energy suppliers need stable, predictable returns to justify infrastructure spending. Customers need affordable bills, particularly during a cost-of-living crisis. The climate needs decarbonisation at speed and scale. When a warm winter can halve profits at one of the country's largest energy companies, it's worth questioning whether the current market structure can deliver all three.
Centrica's shares fell 8% on the results, suggesting investors share those doubts.
