Ofgem lifts energy price-cap: Are these FTSE stocks going to gain?   

Highlights

• Industry regulator Ofgem price cap removal comes into force from 1 October 2021, now the company’s regular charges can be applied.
• The decision to remove the price cap comes amid the ongoing energy crisis in the UK, which led to several smaller energy suppliers going bust.

The UK citizen will see a rise in energy bills as a price cap on the energy tariff, which protected households from higher energy prices ended.

Industry regulator Ofgem’s price cap removal comes into existence from 1 October 2021, after which company’s normal charges are in force. The cap on energy prices was the protection provided by the government and calculated by Ofgem for those sitting on default of energy tariff.

The energy price caps are adjusted twice a year, with the latest changes could resulting in energy bills rising to £1,277 from £1,138, an average rise of £139 per year. According to estimates, nearly 15 million UK households are expected to get impacted.

The decision to remove the price cap comes amid the ongoing energy crisis in the UK, which led to several smaller energy suppliers going bust due to the rise in wholesale gas prices, which rose by over 250% since the start of the year.

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Let us take a look at FTSE listed energy companies that could be positively impacted due to lifting of price cap:

National Grid Plc (LON: NG.)

FTSE100 listed company operates in the distribution of electricity and natural gas. The company’s principal assets are in the UK, comprising 7,236 km of the overhead transmission network. It also has a distribution network in the United States.

The company has a long history of operation and has shown consistent growth. In the financial year ended 31 March 2021, it reported operating profits of £2,895 million and profit before tax £2,083 million. The company also has a regular dividend pay-out policy with a last paid dividend of 32.16p per share.

National Grid Plc current market cap stands at £31,995 million, while its current dividend yield is 5.6% as of 1 October 2021. In the last one year, the stock has given a 1.3% return to shareholders.

SSE Plc (LON: SSE)

The company supplies electricity to over 3.8 million households and businesses across the UK and the central belt of Scotland. In addition, the company engages in the energy trading, property, and telecommunication business.

The company generates its electricity from conventional as well as renewable sources. To further enhance its renewable energy capacity, the company has signed an agreement with Pacifico Energy, Japan-based largest renewable energy developer. As part of the agreement, both companies will create a joint ownership company and develop offshore wind energy projects in Japan. The company’s entry into Japan market will help in diversification and will also have long term growth prospects.

SSE Plc current market cap stands at £16,738 million, while its current dividend yield is 5.2% as of 1 October 2021. In the last one year, the stock has given a 30.46% return to shareholders.

Drax Group Plc (LON: DRX)

The company claims to generate electricity from low carbon and renewable sources. It has a total installed capacity of 3,906 megawatts. Also, the company manufactures and sells wood pellets that are used in electricity production.

The company has made significant progress in recent times to generates more energy from sustainable sources. As part of its strategy to cut carbon emissions, the company acquired Pinnacle Renewable Energy Inc. in 2021. Pinnacle is a leading operator in the biomass generation and supply business. The company plans to reduce carbon emissions by 78% by 2035. The company’s last paid dividend was 10.3p per share.

Drax Group Plc current market cap stands at £1,921 million, while its current dividend yield is 3.9% as of 1 October 2021. In the last one year, the stock has given an 84% return to shareholders.