Vitol Power Unit Under UK Scrutiny Saw Profit Rise 2,600% Last Year

(Bloomberg) -- The British power generation unit of Vitol Group saw a 27-fold increase in profits last year as prices soared and its traders employed controversial tactics that are now facing regulatory clampdown.

The commodity giant’s subsidiary VPI Holding Ltd. made profits of $566 million last year, up from $21 million in 2021, according to Vitol’s audited annual accounts seen by Bloomberg News. It came as part of a record year for Vitol, which netted $15.1 billion.

The numbers highlight the eye-watering profits made by energy companies at the same time as the UK government stepped in with billions of pounds to shield consumers from soaring bills. They also show an extraordinary return on Vitol’s investment in UK power: the trading house bought four of its five gas-fired power stations for just £186 million ($239 million) in early 2021.

A Vitol spokesperson declined to comment.

Vitol, along with other power operators in the UK, is facing a clampdown from regulator Ofgem following supply-gaming moves at gas-fired power plants. Those plants also benefited from a huge gap late last year between the high price of power and the falling cost of gas to generate it.

Traders’ tactics, which the companies have said were within the rules, involved indicating to the grid operator that the plants would turn off when supply was tight — only to demand record prices in a separate back-up market not to switch off. In the past five years, the tactics by Vitol and other operators racked up a tab of at least £525 million ($675 million) for consumers, a Bloomberg News investigation showed in March.

The regulator now plans to ban traders from offering excessive prices in the back-up market, known as the balancing mechanism, during periods in which they already said they didn’t plan to generate.

While his power traders were drawing in record profits, Vitol’s Chief Executive Russell Hardy also met with Treasury officials and Chancellor of the Exchequer Kwasi Kwarteng in September to discuss how to improve liquidity in power and gas markets, Bloomberg News reported on Friday. A company spokesperson said its “sole purpose was to assist policymaker understanding of unprecedented disruption.”

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