Ofgem mulls price cap changes: Should you buy these 2 energy stocks?

Highlights 

• Energy regulator Ofgem in a letter to suppliers today said that it plans to launch a consultation next month amid record gas prices.
• The change from the consultation is expected to be included in February 2022, ahead of the next energy price increase expected in April.
• The current annual price cap is £1,277 on average for over 14 million UK households.

UK’s energy regulator Ofgem is considering making changes to its price cap, as soaring gas prices have driven several energy suppliers to go bust recently.

The move comes after several industry leaders have called for a relook at the price cap system. About 13 suppliers have collapsed in nearly 3 months after gas prices have surged to record highs.

The regulator has not yet confirmed what changes it intends to make to the price cap, however, Ofgem plans to launch a consultation in November.  It plans to include the changes of the consultation in February next year. The changes will thus be expected to come before the likely energy price hike in April.

Over 14 million households have seen the sharpest rise in bills in October after the regulator lifted the price cap on standard tariffs by about 12.5 per cent on 1 October.

The current annual energy price capped bill stands at £1,277 per annum on average. That figure is forecasted to rise to £1,660 per year even before any potential adjustments are made to the price cap, according to research firm Cornwall Insight.

In this context, let us take a closer look at 2 FTSE stocks in the energy sector and their investments prospects:

1. Centrica PLC (LON: CNA)

FTSE 250 index firm Centrica is a UK based multinational energy and services company. The group recently postponed its investor day, which was scheduled to be held on 16 November due to the deepening energy crisis.

The group will release its FY 2021 preliminary results on 24 February. Centrica also added that its performance has been in line with expectations following its H1 2021 results announced in July and that the company is well-positioned for the upcoming winter season and beyond.

(Image source: Refinitiv)

Centrica’s shares were trading at GBX 60.96, up by 0.96 per cent on 29 October at 09:18 AM BST, while the FTSE 250 index was at 23,114.34, down by 0.37 per cent.

The company’s market cap stands at £3,550.75 million, and its one-year return is at 60.68 per cent as of 29 October.

2. National Grid PLC (LON: NG.)

FTSE 100 index listed firm National Grid is the  UK-based multinational electricity and gas utility company.

The UK’s competition watchdog Competition & Markets Authority (CMA) published its RIIO-2 price controls appeal in favour of National Grid on Thursday, which the company had appealed earlier this year.

The CMA directed Ofgem to remove its outperformance wedge from the price control. The move will thus see National Grid’s revenues increase from the next year onwards to reflect the decision.

(Image source: Refinitiv)

National Grid’s shares were trading at GBX 939.40, down by 0.62 per cent on 29 October at 09:28 AM BST, while the FTSE 100 index was at 7,224.73, down by 0.3 per cent.

The company’s market cap stands at £34,191.27 million, and its one-year return is at 1.98 per cent as of 29 October.