Centrica plc – Annual report – 31 December 2025
Industry: electricity and gas
3. Critical accounting judgements and key sources of estimation uncertainty (extract 1)
Climate change
In preparing the financial statements, the Directors have considered the impact of climate change in the context of the risks and opportunities identified in the Task Force on Climate-related Financial Disclosures (TCFD) disclosures on pages 49 to 57. There has been no material impact identified on the financial reporting judgements and estimates. The Directors specifically considered the impact of climate change in the following areas:
- Cash flow forecasts used in the impairment assessment of noncurrent assets, including the Nuclear investment (excluding Sizewell C), battery storage assets, solar assets, and gas peakers/power stations/engines;
- Carrying value and useful economic lives of property, plant and equipment;
- Recoverability of deferred tax assets; and
- Going concern and viability of the Group over the next three years.
Whilst there is no short-term impact expected from climate change, the Directors are aware of the risks and regularly assess these risks against judgements and estimates made in preparation of the Group’s financial statements.
Further detail is provided in note 3(c).
3. Critical accounting judgements and key sources of estimation uncertainty (extract 2)
(c) Climate change
The Group’s assessment of how climate-related issues might affect the business has been integrated into its annual strategic and financial planning process. At the same time, the Group reviews the potential impact of the material risks and opportunities and its Climate Transition Plan on both the current balance sheet position and its accounting policies (including the useful economic lives of its assets).
Summary of our most material risks and opportunities
IFRS dictates how each asset or liability should be accounted for (e.g. cost, fair value or other measurement criteria) and accordingly, there is a fundamental difference between the holistic forward-looking risk and opportunities business analysis (see the TCFD disclosures on pages 49 to 57), and the possible sensitivity of current accounting carrying values to these risks and opportunities.
For example, whilst the activity of supplying gas to customers or servicing/installing gas boilers is clearly subject to climate-related risks (and opportunities), the balance sheet does not reflect an overall value of those businesses (aside from an element of goodwill). Instead, accounting balances related to these businesses generally manifest themselves in short-term working capital assets and liabilities associated with procuring and selling gas or servicing/installing boilers; with those balances generally settled within six months and so specifically less exposed to climate risks.
In a similar vein, Infrastructure assets are tested for impairment in accordance with relevant IFRS accounting standards. These generally require the recoverable amount of the asset to be calculated based on a best estimate of long-term forecast commodity prices, which the Group estimates based on current market prices and Centrica’s view of long-term prices using a balance of reputable commodity pricing consultants’ forecasts. However, these estimates are not consistent with net zero scenarios from the consultants (as they do not factor in any prospective, yet to be announced, legislative or market changes that would be required to meet temperature targets) and hence impairment reviews are not based on net zero scenario forward prices. The Group instead discloses the impact on the carrying value of Infrastructure assets by way of sensitivity analysis (see note 7(c)).
Accordingly, the Group is mindful of these dynamics when it considers which areas of the balance sheet are exposed to key estimation uncertainty from climate-related issues. The Group considers which assets are most exposed to impairment (or write-backs) from climate risks and similarly whether there are any liabilities that are either currently unrecognised or might increase as a result of those risks.
The Group’s assets/liabilities have been segmented into three tranches, grading each balance’s exposure to climate risks/opportunities:
(i) Higher risk – As the consumption of gas and power is intrinsically linked to carbon emissions, their pricing is consequently exposed to climate and legislative risk. Accordingly, where assets or contract values have a key dependency on commodity price assumptions and their carrying value is material, those assets (or contracts) are deemed higher risk.
(ii) Medium risk – Infrastructure assets with reduced exposure to commodity prices or lower carrying values, together with decommissioning balances, and gross margin energy transition considerations and their potential impact on forward-looking balances (e.g. Retail and Optimisation goodwill).
(iii) Lower risk – No significant risk identified on the basis that positions are short-term in nature or are specifically linked to the energy transition or are immaterial.
The key non-current asset (and decommissioning provision) balance sheet items have been presented in more granular detail below, together with the groupings into the above risks and with rationale set out below the table:
Physical Risk Assessment
During the year, the Group reassessed physical climate risks using UK Met Office climate projections and the World Resources Institute (WRI) Aqueduct platform. Across our portfolio, including offshore assets and the Isle of Grain LNG terminal, no material short- or long-term financial statement impacts were identified due to existing mitigations and asset resilience, including flood defences at the Isle of Grain LNG terminal designed to provide protection to at least 2070. Any potential reduction in heat demand under extreme warming scenarios is considered within revenue estimation processes and does not change the conclusions of our impairment or going-concern assessments.
All items noted above may be impacted by climate-related risks but are not currently considered to be key areas of judgement or sources of estimation uncertainty in the current financial year.
Higher risk
The valuation of the Nuclear investment (excluding Sizewell C) is highly dependent on forecast commodity prices. Climate change risks and opportunities means there is uncertainty over electricity demand and forecast prices. The underlying nuclear stations, which produce electricity with no carbon emissions, have different useful economic lives, with the last station forecast to cease operating in 2055.
The Group’s gas peakers/power stations/engines are similarly exposed to climate change risk, with valuations dependent on forecast gas and electricity prices and electricity demand. During the year, this asset class has become material to the Group with the continued construction of two Irish gas peaker assets. The associated decommissioning obligations are deemed medium risk as the value is not significant in the context of the Group.
Valuation sensitivity information based on a net zero price forecast has been provided in note 7(c) for these assets.
Medium risk
The investment in the Sizewell C nuclear new-build power station has some exposure to physical climate change risk during the build and operation phases. However, due to the regulated asset base funding model, the asset valuation itself is less exposed to commodity prices. Accordingly it is deemed medium risk.
The investment in the Isle of Grain LNG terminal has exposure to climate change risk both from a physical asset perspective and from the impact of locational gas price spreads. However, it is deemed medium risk because the investment carrying value is not significant in the context of the Group.
Gas field valuations are dependent on forecast commodity prices. Climate change risk means that there is uncertainty over gas demand and forecast prices. During the year, the announced disposals of a large proportion of the Gas field portfolio mean that the remaining property, plant and equipment carrying value is much smaller than before and therefore is also deemed medium risk. Note further investment in exploring for new gas fields has ceased with the portfolio’s decommissioning obligations expected to be substantively met by the early 2030s (including the Rough storage facility).
Deferred tax assets associated with gas fields and the Rough storage facility are predominantly related to decommissioning cost recovery and are not considered high risk due to the length of carry-back rules. Deferred tax assets associated with derivatives are considered medium risk as the derivatives generally realise within two years.
The Group’s investment in CHP and other power assets are also exposed to climate risk. They have useful economic lives of up to 40 years but they do not, individually or in total, have material carrying values.
The Group’s meter assets are exposed to climate change risk because they record usage of both gas and power. They are deemed medium risk because they are subject to contractual arrangements that provide for ongoing revenue security from suppliers.
LNG vessels on the balance sheet are exposed to risk from climate change, but as they are leased assets with the current term remaining less than five years, this risk is reduced to medium.
The Group continues to transition to an electrified vehicle fleet. Nonelectric vehicles are deemed medium risk because their remaining useful economic lives are generally short.
Retail and Optimisation Goodwill and Application Software are categorised as medium risk because the businesses are exposed to energy transition risk as a result of climate change. However, there are also significant opportunities for these businesses and the carrying values are not material.
Lower risk
All other assets denoted in the table above are considered lower risk because they are either specifically related to the energy transition (e.g. electric vehicles, battery storage and associated decommissioning, solar) or are immaterial. Note that designation as lower risk does not mean these assets are not at risk of impairment (e.g. from reduced residual values or commodity price movements) but instead is an assessment of specific exposure to climate change risks.
Other contracts
The Group also has long-term LNG supply contracts with Cheniere, Delfin, Mozambique, Repsol and PTT. These are not reflected on the balance sheet but the Group has certain purchase commitments.
The Group also has long-term gas sale and purchase agreements, which similarly have long-term commitments (see note 23). The contracts currently have significant value (when considered together) because of gas price locational spreads but are exposed to climate change risk and therefore could ultimately become onerous in net zero scenarios. The commitments note provides detail of the length of the contracts and commodity purchase commitments.
Governance over climate-related judgements
Climate-related financial reporting judgements including impairment assumptions, decommissioning estimates and going concern/viability considerations are reviewed through the governance structure described in the TCFD disclosures on pages 49 to 57 (the Board, Audit & Risk Committee, and Safety, Environment and Sustainability Committee), with management oversight via the Centrica Leadership Team and the Group’s risk processes summarised in the Strategic Report – Principal Risks and Uncertainties on pages 32 to 39.
Interaction with the Climate Transition Plan
The Group’s Climate Transition Plan informs strategic planning, capital allocation and certain long-term business assumptions (e.g. electrification uptake, flexibility needs and hydrogen readiness).
These planning assumptions are considered in viability and useful life assessments but do not override the market-based inputs required for IFRS measurement.
Accounts examples 