Water utility Pennon expects power costs to almost double this year

(Reuters) -British water company Pennon Group on Friday forecast its annual power costs would almost double this year from the year before, as an energy crisis dents business and household budgets.

The company expects total power costs across the group to be around 106 million pounds ($118.3 million) for the current fiscal year, up from 56 million pounds reported last year.

Britain has been battling a sharp rise in energy costs, which have pushed the inflation rate to 9.9% in August. The government has said it will cap wholesale electricity and gas costs for businesses at less than half the market rate from October until the end of March.

The UK price surge is part of a Europe-wide power crunch sparked by a drop in gas supplies from Russia following its invasion of Ukraine, which has left policymakers across the continent scrambling to respond.

The water utility plans to invest 160 million pounds in its goal of reaching net zero emissions by 2030 and of generating enough electricity to meet half of its own needs by the same date.

“Pennon’s drive towards 50% self-generation from renewable electricity should help to reduce volatility in the cost base going forward,” analysts at Hargreaves Lansdown said in a note.

Despite the rising costs and the volatile macro-economic environment, Pennon said its trading has been in line with its guidance.

The company now anticipates a deferred tax credit of around 120 million pounds after the government reversed its plans to increase corporate tax and scrapped the country’s top rate of income tax last week.

Pennon’s peer United Utilities earlier this week lowered its annual revenue forecast and said it expects a weaker half-year operating profit, weighed down by tepid consumption and higher costs.

Shares in Pennon, which in early trade hit their lowest in three years, were up 3.6% at 0949 GMT.

($1 = 0.8960 pounds)

(Reporting by Radhika Anilkumar in Bengaluru; Editing by Sherry Jacob-Phillips, Uttaresh.V and Jan Harvey)